PJM reports 3rd consecutive decline in power capacity prices

Power capacity prices across the PJM Interconnection LLC's 13-state footprint declined for the third consecutive year as the amount of capacity being offered by generators participating in PJM's base residual auction continued to decline.

PJM on Feb. 27 reported a footprint-wide capacity market clearing price of $28.92/MW-day for the 2024/2025 delivery year, down from $34.13/MW-day for the prior delivery year. Total capacity auction revenues of approximately $2.2 billion were roughly the same as those in the previous auction, with the number of transmission-congested local delivery areas in PJM increasing from three to five.

Held three years in advance of when power supplies are needed, PJM's capacity auctions are designed to keep the lights on for 65 million mid-Atlantic customers and send price signals that guide market entry and exit decisions.

Overall, about 2,200 fewer MW were offered into the 2024/2025 auction compared to the auction covering the 2023/2024 delivery year. The auction results mark the third year in a row total offered capacity has declined.

"If this trend continues, it represents a potential concern for long-term resource adequacy, depending on the rate of replacement of these resources," PJM said in a news release.

The 2024/2025 auction cleared a total of 140,416 MW excluding energy efficiency resources, giving PJM a 20.4% reserve margin. For the 2023/2024 delivery year, PJM reported a 20.3% reserve margin.

"We do remain concerned about market sellers' ability to include risk in their capacity market offers," Stu Bresler, PJM's senior vice president of market services, told reporters during a Feb. 27 media briefing.

PJM expects to levy between $1 billion and $2 billion in performance penalties for generators that failed to perform as expected during a severe cold weather event in December 2022.

Increases in gas, solar offers

The most significant increase in capacity offers, an incremental 1,615 MW, came from natural gas-fired units, followed by an increase of 1,290 MW in capacity offers from solar generators. That was offset by decreases of about 450 MW from demand response, 330 MW from nuclear generators, 280 MW from coal-fired resources, and about 230 MW from hydro and oil-fired resources, respectively.

The figures include an additional 32,545 MW of capacity that was procured separately through what is known as a fixed resource requirement, or FRR.

In July 2021, Dominion Energy Inc. subsidiary Dominion Energy Virginia, known legally as Virginia Electric and Power Co., announced it would satisfy its own capacity obligations through the FRR option in response to long-running disputes at the Federal Energy Regulatory Commission over PJM's capacity market rules. Entities that pursue the FRR option must commit to remaining outside of PJM's capacity market for at least five years.

Clearing prices were significantly higher in five constrained areas, including the Delmarva Power & Light Co. local delivery area.

PJM delayed the release of its results for the 2024/2025 delivery year when a supply-demand mismatch in the area — dubbed DPL-S — would have caused clearing prices there to more than quadruple from its actual reported clearing price of $90.64/MW-day.

On Feb. 21, a divided FERC approved a contested PJM proposal to alter the 2024/2025 auction results to avoid a major price spike for DPL-S customers. In doing so, FERC announced a forum to be held at a later date to consider the best path forward for PJM's forward capacity market construct.

PJM board members also sent a Feb. 24 letter to stakeholders announcing a "critical issue fast path process" aimed at producing more meaningful changes within a short time frame.

In the letter, the board requested input on whether its next capacity auction, scheduled for December 2023, should be delayed so that the fast-track process can be completed this year.

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