(Bloomberg) – Power plant owners serving the largest US grid will receive 64% less next year for waiting to 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 capacity for the year beginning June 2022, according to the results of an auction published Wednesday. That’s well below $ 140 at the previous auction, held in 2018. Analysts had expected the price to drop to around $ 85.
It’s a blow to power generators, especially coal plants. 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.
“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.
Those lower prices could be especially painful for Exelon’s Illinois nuclear plants, 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.
The results showed that the capacity price for the Chicago area, known as ComEd, was $ 68.96 compared to $ 195.55 at the last auction. The price of the Pennsylvania and New Jersey area, known as EMAAC, fell to $ 97.86, from $ 165.73. In total, 144,477 megawatts were cleared, representing a reserve margin of 21%.
Exelon shares fell 0.8% after the results were released. PSEG fell 0.4%.
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.
The nuclear plants managed to win more contracts at the auction, releasing an additional 4,500 megawatts. Wind and solar power added around 1,300 megawatts from the previous auction, and natural gas added 3,400 megawatts. Coal was the big loser, dropping about 8,200 megawatts.
“We continue to see increases in renewables,” said Stu Bresler, senior vice president of market services for PJM, during a briefing. “Coal units represent the largest decrease of any type of fuel.”
Analysts expected nuclear and renewables to struggle at auction. That’s because of new rules imposed during the Trump administration designed to mitigate any advantages wind, solar and reactors have from state subsidies. But in the end, the rule had little impact, PJM officials said.
Advantage of fossil fuels
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.
See also: Biden’s climate targets will take a backseat on America’s largest power grid.
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.
PJM is already one of the most fossil fuel intensive grids, with 60% of its electricity coming from coal and gas. The power plants participating in the auction depend on it for most of their revenue. That means plants that win contracts have an incentive to continue operating for as long as possible.
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