(Bloomberg) – Coal plants, nuclear reactors and other generators will take a hit next year on America’s largest power grid as payments plummet 64% to help keep the lights on from New Jersey to Illinois.
Providers to PJM Interconnection LLC’s network, which serves more than 65 million people, will receive $ 50 a megawatt-day to provide backup capacity for the year beginning June 2022, according to the results of an auction published on Wednesday. It is the lowest price in 11 years.
The results are a particularly hard blow to coal plants and nuclear reactors already struggling to compete. The PJM auction is the biggest event for generators in the eastern US, including Calpine Corp., NRG Energy Inc., and Exelon Corp., because it dictates a large chunk of their future revenue. It also plays a critical role in shaping the region’s electricity mix, determining how much the region is willing to stick with coal and natural gas plants or replace them with wind and solar power.
“I can’t imagine how nuclear power will be able to cover all its fixed costs at such a low price,” said Brianna Lazerwitz, an analyst at BloombergNEF.
Analysts expected the price to fall, but not by that much. A confluence of factors led to the decline. The demand forecast was lower. The transmission capacity was greater. And a flood of new, cheaper-to-build power plants entered the market, pushing down on bids, PJM officials said.
The lower prices could be especially painful for Exelon’s nuclear plants in Illinois, implying a pre-tax hit of $ 900 million, Bloomberg intelligence analyst Kit Konolige said in a research note. Public Service Enterprise Group Inc. could take a $ 200 million hit, he said.
Exelon shares fell 0.8% after the results were released. PSEG fell 0.4%. Exelon did not respond to a request for comment. PSEG declined to comment.
“It’s a direct impact on companies’ income statements,” Gayle Podurgiel, Moody’s energy markets analyst, said in an interview. She predicted it would cause more coal plants to shut down.
Analysts had expected the auction to hurt renewables and nuclear power, while potentially boosting coal. That’s because the new rules imposed by regulators under former President Donald Trump were designed to mitigate any wind, solar and reactor benefits gained from state subsidies. But in the end, the rule was not a big factor, in part because the sharp drop in prices mitigated the advantages for some participants. In addition, exemptions were granted to many bidders.
“There was probably some impact, but I don’t think it was a big impact,” Stu Bresler, PJM’s senior vice president of market services, said during a briefing.
The price for the Chicago area, which Exelon serves, was $ 68.96 compared to $ 195.55 at the last auction. The price for the Pennsylvania and New Jersey region, including PSEG territory, fell to $ 97.86, from $ 165.73. In total, 144,477 megawatts were cleared, representing a reserve margin of 21%.
Nuclear plants managed to win more contracts in the auction, eliminating an additional 4,500 megawatts from the previous auction in 2018. Wind and solar power added about 1,300 megawatts, and natural gas added 3,400 megawatts. Coal was the big loser, dropping about 8,200 megawatts.
Extreme weather blackouts in Texas and California over the past year have reignited a debate over whether other regions should institute capacity systems similar to the one used by PJM. The market, which pays generators to standby in case additional power is needed, has long been a source of controversy. While it makes the network more reliable, the system increases costs for consumers. In the area around Chicago, for example, these charges total more than $ 1.7 billion per year, representing 20% of customer bills, according to the Illinois Clean Jobs Coalition.
New pricing rules imposed by federal regulators under Trump triggered contentious disputes between energy providers, PJM and federal regulators, delaying the auction for two years. However, the new system may be short-lived. The Biden administration is moving to review the rules in time for the next auction in December.
Dominion Energy Inc., one of the largest US utility owners, was pulled from the market due to the rules. The Virginia-based company, which has a goal of net zero carbon emissions by 2050, said the new PJM format will “make renewables more expensive” than delivering clean energy through alternative markets.
Illinois, New Jersey and Maryland have also threatened to exit the capacity market unless the new floor price is removed. PJM has already launched a process to do so.
“After all that fighting, it basically had no impact,” said Bloomberg NEF’s Lazerwitz.
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