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Big jump in PJM capacity prices attributed to drop in total cleared capacity

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Big jump in PJM capacity prices attributed to drop in total cleared capacity

While the significant year-over-year jump in clearing prices in PJM Interconnection's latest capacity auction was a surprise, the decrease in total cleared capacity, including a sharp reduction in nuclear generation, has been named as the main driver for the surge.

At the RTO zone and most other zones, the clearing price in PJM's 2021/2022 Base Residual Auction spiked about 83% from the prior year's auction to $140-MW/day.

PJM officials attributed the price surge to several factors, including a stronger demand curve; higher net cost of new entry; and an ongoing decline in energy prices, which causes generators to seek revenues in the capacity market through higher offers.

However, Manan Ahuja, senior director for North America Power Analytics at S&P Global Platts, said a drop in total cleared capacity, most notably nuclear generation, was the primary cause of the year-on-year spike in clearing prices.

While it was expected that about 4.0 GW of nuclear generation would not clear in the auction due to the planned retirement of three of FirstEnergy Corp.'s nuclear reactors in northern Ohio and western Pennsylvania by 2021 due to market challenges, Ahuja said he was surprised by the actual amount of total nuclear generation that failed to clear.

"We did not anticipate that 10.6 GW of nuclear generation would not clear, which is about 7.4 GW higher year on year, in terms of nuclear not clearing," Ahuja said May 31 at the Platts Northeast Power and Gas Conference in New York.

Apart from the 4.0 GW of FirstEnergy's generation not clearing, almost an additional 4.0 GW or so of Exelon Corp.'s nuclear generation also did not clear the auction, including two plants in the ComEd area.

According to an S&P Global Market Intelligence analysis that used proprietary Power Forecast data, excluding the capacity that FirstEnergy plans to deactivate, about 16,107 MW of nuclear capacity and 14,849 MW of coal capacity was at risk to not clear in the auction.

While the clearing price in the latest PJM capacity auction was massively higher on the year, even at that level, Ahuja was surprised that so few megawatts of new capacity, particularly gas-fired capacity, cleared. Only one new 893-MW combined-cycle cleared in 2018, while the 2017 auction cleared 2,350 MW of new combined-cycle gas units.

S&P Global Platts and S&P Global Market Intelligence are owned by S&P Global Inc.