Most PJM capacity prices likely lower this auction: observers
The PJM Interconnection’s capacity market auction, of which 80% must be capacity-performance resources, for the 2019-2020 year started Wednesday and continues through Tuesday, and industry observers say growing supply and lightening loads indicate lower prices ahead for most areas.
The auction is to acquire 157,092 MW of capacity, and the price cap, excluding congestion, is $448.95/MW-day, compared with $450.86/MW-day for the 2018-2019 capacity auction.
Julien Dumoulin-Smith, UBS Investment Research director for electricity market research, said his organization has lowered expectations to $120/MW-day for most of the PJM footprint from UBS’ previous estimate of $140/MW-day for PJM’s Reliability Pricing Model auction.
“We see growing confidence on continued new gas entry as well as resolution of demand-response uncertainty arising from the favorable Supreme Court as adding to supply pressure amidst a lower load forecast [year on year],” Dumoulin-Smith said in an email to investors Tuesday.
In January, the US Supreme Court ruled that the Federal Energy Regulatory Commission has the authority to establish rules that promote demand response participation in wholesale power markets.
Dan LoBue, president of Competitive Energy Consulting, said he agreed, in general, with Dumoulin-Smith’s conclusions, especially regarding the influence the Supreme Court ruling on demand response is likely to have on PJM’s capacity market auction.
“I think the FERC ruling is going to be a big player,” LoBue said Wednesday.
However, Dumoulin-Smith said the Chicago area’s Commonwealth Edison region has “a potential for higher prices … above the $215/MW-day posted last year, as nuclear units continue to lose yet more money.”
Eric Smith, Tulane Energy Institute associate director, said smaller, older, single-reactor sites are less likely to clear a capacity auction.
“I believe it all has to do with absorbing the high fixed regulatory costs associated with [nuclear plants],” Smith said in an email Tuesday.
In a note to investors, Tudor Pickering Holt noted that Exelon “has decided to make May 31 the deadline to retire early two of its cash-flow-negative” Illinois nuclear plants — the Clinton plant, at 990 MW, and the two 912-MW Quad Cities units.
“The retirements could be stopped if the [Illinois] nuclear legislation and the upcoming PJM capacity auction produce favorable outcomes, but we think that is unlikely,” TPH said.
“We believe the ComEd region could continue to clear at higher levels as we see risk to more units than just Quad Cities and Clinton,” Dumoulin-Smith said.
“We agree with presentations delivered to the legislature staff in Illinois recently that under the current forward expectations, prices did not justify units beyond the two contemplated for retirement,” he said.
