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Lower fuel costs helped drive PJM power prices down in H1'19

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Lower fuel costs helped drive PJM power prices down in H1'19

The PJM Interconnection's wholesale power market produced competitive results during the first half, with lower fuel costs helping drive down prices compared to the first half of 2018, the grid operator's independent market monitor said Aug. 8.

In its "2019 State of the Market Report for PJM: January through June," Monitoring Analytics LLC said the PJM markets have brought customers the benefits of competition.

"The goal of competition is to provide customers wholesale power at the lowest possible price, but no lower," the report said. "The PJM markets have done that."

The load-weighted average real-time locational marginal price for power was down 35.2% in the first half compared to the same period of 2018, at $27.49/MWh versus $42.44/MWh. Of the $14.95/MWh decrease, 31% was due to lower fuel costs, with the balance coming from decreased load and lower markups, the IMM said.

The market monitor noted that inflation-adjusted load-weighted real-time energy prices were lower in the first half of 2019 than in the first half of any year since the PJM energy market was created April 1, 1999.

Still, the PJM markets, like other wholesale power markets in the U.S., are facing challenges that could threaten the viability of competitive markets.

"The value of markets is under attack, from those who think energy prices are too low and from those who think that market outcomes do not favor their preferred technology whether it is nuclear, coal, wind or solar," the report said.

The market monitor said the "the fundamental current design of PJM markets is sustainable" and none of the key parts of those markets need to be overturned.

"There is no reason to create convoluted capacity market rules to exclude any competitive offer from any technology including renewable and nuclear technologies," the IMM said. "There is no reason to artificially increase energy prices to benefit nuclear and coal plants."

Calling PJM's proposal to adjust its capacity market rules to account for state-subsidized resources "complex and unworkable," the market monitor advocated for a sustainable market rule that would "provide a straightforward way to harmonize federal and state approaches to the provision of energy, while respecting the distinction between federal and state authority."

The Federal Energy Regulatory Commission has yet to rule on the matter, and the agency told PJM in July (FERC dockets EL16-49, EL18-178) that it cannot hold a capacity auction Aug. 14 that originally was supposed to have taken place in May.

As it did in a report covering the first quarter of 2019, the market monitor questioned PJM's energy price formation filing with FERC (FERC docket EL19-58).

The market monitor said PJM has not explained how the proposed changes enhance or maintain the competitiveness of the markets. Further, the proposed changes likely will create "significant unintended consequences that PJM cannot foresee or address."

The market monitor said wholesale power markets will continue to evolve.

"The market design can be improved and made more efficient and more competitive," the report said. "PJM and its market participants will need to continue to work constructively to refine the competitive market design and to ensure the continued effectiveness of PJM markets in providing customers wholesale power at the lowest possible price, but no lower."