New York — Consumer advocates for PJM Interconnection states have stressed the importance of competitive power market evolution as PJM's board searches for a new CEO, an issue that is gaining prominence across the US Northeast where state policies increasingly impact power markets.
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"Competition in the wholesale markets is critical to maintaining affordable and reliable service," Kristin Munsch, president of the Consumer Advocates of the PJM States' board of directors, said in a letter to PJM's board of management and outgoing president and CEO Andy Ott, that PJM distributed Tuesday.
"PJM's customers are also increasingly affected by state policy decisions around the environmental and economic impacts of different types of generating resources," Munsch said.
State policies including renewable portfolio standards, offshore wind project solicitations and financial support mechanisms for generation resources like nuclear power have been challenging the competitive aspect of PJM's wholesale power markets.
"The PJM markets bring customers the benefits of competition," Monitoring Analytics, PJM's independent market monitor, said in first quarter 2019 State of the Market Report.
"But the PJM markets, and wholesale power markets in the US, face new challenges that potentially threaten the viability of competitive markets," the IMM said.
Challenges that must be incorporated within the market design of a sustainable competitive wholesale power market include nonmarket revenues for renewable energy from state programs; a "significant level of generation resources" subject to cost of service regulation; and the structure and performance of the existing market-based generation fleet, the IMM said.
As a result, PJM has filed major capacity market design changes with the Federal Energy Regulatory Commission (EL18-178), which has yet to rule. PJM also filed in March energy market rules changes with FERC directed at PJM's reserve market to address changing system conditions (EL19-58).
ISO New England recently overhauled its capacity market, ushering in rules called Competitive Auctions with Sponsored Resources that first went into effect for the grid operator's February capacity market auction.
CASPR was developed to accommodate increasing volumes of generation resources like wind and solar power that receive state-level support through RPS and other programs designed to stimulate the development of clean energy.
ISO-NE's capacity market auction closed at a clearing price of $3.80/kW-month, compared to $4.63/kW-month in last year's auction, an 18% decline, which was the lowest clearing price in six years.
The market in New England will dramatically change in the next five to 10 years with the prospect of up to 60% of the regional electricity coming from subsidized resources, Dan Dolan, president of trade group New England Power Generators Association, said at the S&P Global Platts Northeast Power and Gas Markets Conference in New York in May.
One of the sources of tension between state-level clean energy policies and the competitive markets is the markets were not designed to value the environmental impacts -- positive or negative -- of various generation resources.
"The power markets are not solving for, and were not designed for, the accomplishment of environmental objectives," Travis Kavulla, director of energy and environmental policy at free market think tank R Street Institute, said at the New England Power Pool's Summer Meeting in Newport, Rhode Island, on June 26.
"Likewise, markets have allowed more economic, cleaner natural gas to replace less efficient and less clean coal. But there is no objective function to the markets to solve for the variable of carbon-dioxide emissions," Kavulla said.
And while the markets could be adapted to value environmental externalities, Kavulla argued, political will is lacking.
The New York Independent System Operator, a single-state ISO where both legislative chambers and the governor's mansion are controlled by Democrats, is working to price carbon emissions into its wholesale markets. If successful, the NYISO's approach -- or aspects of it -- could be applied in other markets.
However, in the absence of such market-based approaches to effectuate policy, "we may end up on a path where legislators simply write laws that decree the construction of particular power projects by particular parties," Kavulla said, which would be an "earmarking policy" even worse than "integrated resource planning."
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