PJM market monitor pushes capacity market changes to enhance efficiency
The PJM Interconnection’s market monitor’s State of the Market report found that the wholesale market is competitive, but made three new recommendations and two modified recommendations to enhance the market’s competitiveness and efficiency, Platts reports.
The report, by Monitoring Analytics, found that the load-weighted average real-time location marginal price (LMP) in PJM was 24.7% lower in the first nine months of 2016 than in the first nine months of 2015, $29.32/MWh versus $38.94/MWh.
The report also showed that net revenue, a measure of investment incentive, also decreased, falling 23% for a new combustion turbine, 22% for a new combined-cycle plant, 60% for a new coal plant, 71% for a new diesel unit, 34% for a new nuclear plant, 25% for a new wind farm, and 33% for a new solar installation. Congestion costs also decreased 28% to $320.7 million, and energy uplift charges – essentially payments required to make generators whole when they need to fill in energy supplies – decreased nearly 64%.
PJM has many constituents, and it is not easy to keep them all happy. A group of electric cooperatives and municipal power providers, for instance, is pushing for a wide ranging reassessment of PJM’s capacity market. They are concerned that PJM’s capacity market gives short shrift to the policy goals of individual states.
PJM has apparently taken those concerns to heart, as the recommendations in the market monitor’s report include changes to PJM’s capacity market.
The report recommends, among other things, that energy efficiency resources be excluded on the supply side of the capacity market because PJM’s load forecasts now account for future energy efficiency, but did not when energy efficiency was first added to the capacity market.
The report also recommends that if PJM releases capacity in incremental auctions, are used as a true-up mechanism between the intervals auction periods, that the RTO should offer the capacity for sale at the capacity market clearing price in order to avoid suppressing the incremental auction price below competitive levels.
For demand response, the report recommends that PJM does not remove any defined subzone and maintains a public record of all created and removed subzones.
And for energy uplift, the market monitor recommends that if PJM believes it appropriate to modify the price setting logic that the RTO initiates a stakeholder process to create transparent and consistent modifications to its rules and incorporates the modifications in its tariff.
But environmental groups have also questioned PJM's market capacity rules and sued the grid operator in July saying the regulations put renewable energy and clean energy at a disadvantage. Conversely, generators have said the capacity market rules do now allow more payment to existing baseload generation, particularly nuclear plants. The CEOs of Dynegy, Exelon and AEP have all told Utility Dive they would push for market protections for those plants as a hedge against cheap natural gas and renewable energy.
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