Dive Brief:

• PJM Interconnection's wholesale electricity markets are working smoothly and producing competitive results, according to a first quarter analysis from the grid operator's independent market monitor.
• The Monitoring Analytics report, released May 9, shows energy prices in the first three months of 2019 were "significantly lower" than the same period of 2018, in part due to lower fuel costs. The steep decline in first quarter congestion costs was largely due to more extreme weather conditions and higher gas prices in 2018 than in 2019, according to PJM.
• The load-weighted average for real-time energy markets — the locational marginal price (LMP) —was 39% lower, at $30.16/MWh, according to Monitoring Analytics. The lower fuel costs helped depress net revenues, while milder weather significantly reduced congestion costs from transmission constraints and LMP differences. 

Dive Insight:

Net revenues in the PJM energy markets were down for all generators, but most significantly for coal and diesel units. Revenues can be an indicator of generation investment profitability, and is a "key measure of overall market performance," according to the report.

The lower revenues make it more difficult for generators to recoup their costs. The monitor's report analyzed the total unit revenues of theoretical new entrants, and concluded combustion turbine and combined cycle units that came into the PJM market in 2007, "have not covered their total costs, including the return on and of capital, on a cumulative basis." 

In the first quarter, average energy market net revenues decreased by 85% for a new coal plant, 93% for a new diesel unit, 42% for combined cycle units and 65% for a combustion turbines. Revenues for new onshore wind installations fell 40%, 22% for new solar and 37% for nuclear.

"Units that entered the PJM markets in 2012 have covered their total costs on a cumulative basis in the eastern PSEG and BGE zones but have not covered total costs in the western ComEd Zone," according to the report. "Energy market revenues alone were not sufficient to cover total costs in any scenario, which demonstrates the critical role of the capacity market revenue in covering total costs."

Lower market revenues reduce incentives for investment, but ​PJM officials told Utility Dive they cannot speculate if "isolated year-to-year fluctuations in prices driven by extreme conditions and/or fuel costs will impact the long-term price signals of a competitive market that incentivizes development of new generation."

The grid operator also said its PJM's price formation initiatives are anticipated to provide "proper incentives for development of new more flexible and efficient resources."