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PJM power prices lowest since energy market created, market challenges persist: monitor

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PJM power prices lowest since energy market created, market challenges persist: monitor

Highlights

Power prices 30% lower in first nine months of 2019 than 2018

Coal and nuclear plant retirements not reliability, fuel security concern

New York — PJM Interconnection's inflation adjusted load weighted real-time energy prices were lower in the first nine months of 2019 than in the corresponding period of any year since PJM's energy market was created in 1999, the independent market monitor said Thursday.

The locational marginal price was 30.0% lower in the first nine months of 2019 than in the first nine months of 2018, at $27.60/MWh versus $39.43/MWh, the IMM, Monitoring Analytics, said in its Quarterly State of the Market Report for PJM: January through September.

Of the $11.83/MWh decrease, 34.2% was a result of lower fuel costs, with other contributors to the decrease being the dispatch of lower cost units, decreased load and lower markups, the IMM said.

"Energy prices in PJM are not too low. Energy prices reflect the short run marginal costs of energy, consistent with a competitive market," the monitor said, adding there is no evidence to support the "asserted need for a significant change to the level of energy market revenues."

PJM recently made changes to its energy market rules intended to increase the accuracy of price signals, but the IMM argues that making improvements to scarcity pricing would be a better approach.

"The underlying problem that fast start pricing and PJM's reserve pricing approach are attempting to address is actually scarcity pricing," according to the report.

The maximum average on-peak hourly offered real-time supply was 152,460 MW for summer of 2018 and 152,933 MW for summer of 2019, while during the first nine months of 2019, 1,749.6 MW of new resources were added and 4,173.5 MW were retired.

Peakload in the first nine months of 2019 was 148,228 MWh on July 19, 2019, which was 1,185 MWh, or 0.8%, higher than the PJM peak load for the first nine months of 2018, which was 147,042 MWh on August 28, 2018, the market watchdog said.

The level of potential of coal and nuclear unit retirements does not imply a reliability issue in PJM and does not imply a fuel security issue, the IMM said. PJM had excess reserves of more than 11,000 installed capacity MW on June 1, 2019, and will have excess reserves of more than 12,000 ICAP MW on June 1, 2020, based on current positions.

There are currently 124,399.7 MW in the PJM generator interconnection queues, of which 35,269.3 MW are expected to enter service based on historical completion rates, the report said.

The role of natural gas continued to increase during the study period and the capacity of gas-fired units has exceeded the capacity of coal units and nuclear units in PJM since 2017. The energy output of gas-fired plants exceeded the energy output of coal plants and of nuclear plants in the first nine months of 2019, the IMM said.

Gas-fired units were almost 70% of marginal units, which a significant increase over the 37% share held in 2015, the report said.

MARKET CHALLENGES

PJM's markets, and wholesale power markets in the US, face new challenges that "potentially threaten the viability of competitive markets," the IMM said. "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," according to the report.

The monitor has found that PJM's capacity market is not competitive due to the exercise of market power, specifically saying structural market power is endemic to the capacity market. Capacity market performance was evaluated as not competitive due to participant behavior in which offers exceeded the competitive level.

The Federal Energy Regulatory Commission directed PJM not to run its 2019 base residual capacity auction for delivery years 2022/23, as the commission is in the process of ruling on PJM's proposed market rule changes.

The IMM argued PJM's capacity market proposal is "convoluted."

"PJM filed a proposed complex and unworkable redesign of the capacity market that would effectively exclude new state subsidized renewable resources from the capacity market and would result in a significant increase in capacity market payments," the IMM said.

-- Jared Anderson, jared.anderson@spglobal.com

-- Edited by Richard Rubin, newsdesk@spglobal.com

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