Tighter Supply/Demand Balance Drives Higher Pricing Across
the Region
VALLEY
FORGE, Pa., July 30,
2024 /PRNewswire/ -- PJM's capacity auction has
competitively secured resources to meet the RTO reliability
requirement for the 2025/2026 Delivery Year. Auction prices were
significantly higher across the RTO due to decreased electricity
supply caused primarily by a large number of generator retirements,
combined with increased electricity demand and implementation of
FERC-approved market reforms.
While the overall resource mix is adequate, two zones cleared
just short of their reserve requirement, resulting in prices being
set at the zonal cap.
The higher prices send a clear investment signal across PJM's 13
states and the District of
Columbia.
"The capacity auction has been a valuable tool over time to help
PJM competitively secure resources to meet reliability
requirements," said President and CEO Manu
Asthana. "The significantly higher prices in this auction
confirm our concerns that the supply/demand balance is tightening
across the RTO. The market is sending a price signal that should
incent investment in resources."
The auction cleared a diverse mix of resources, including 48% of
gas, 21% of nuclear, 18% of coal, 1% of solar, 1% of wind, 4% of
hydro, 5% of demand response and 2% from other resources.
Specifically, the drivers of higher prices in this auction
include:
- Decreased supply offers into the auction due mainly to
generator retirements
- Increase in projected peak load
- FERC-approved market reforms, including improved reliability
risk modeling for extreme weather and accreditation that more
accurately values each resource's contribution to reliability
The amount of supply resources in the auction decreased again
this year, continuing the trend from recent auctions and
underlining PJM's stated concerns (PDF) about generation resources
facing pressure to retire without replacement capacity being built
quickly enough to replace them. Approximately 6,600 MW of
generation have retired or have must-offer exceptions (signaling
intent to retire) compared with the generators that offered in the
2024/2025 Base Residual Auction (BRA).
Meanwhile, the peak load forecast for the 2025/2026 Delivery
Year has increased from 150,640 MW for the 2024/2025 BRA to 153,883
MW for the 2025/2026 Delivery Year. Additionally, FERC-approved
market reforms contributed to tightening the supply and demand
balance by better estimating the impact of extreme weather on load
and more accurately determining resource reliability value.
These reliability concerns associated with reducing supply and
increasing demand are not limited to PJM; the North American
Electric Reliability Corporation has identified elevated risk to
the reliability of the electrical grid for much of the country
outside of PJM.
To facilitate the entry of new resources, PJM is implementing
its FERC-approved generation interconnection reform, with
approximately 72,000 MW of resources expected to be processed in
2024 and 2025.
However, PJM remains concerned with the slow pace of new
generation construction. Approximately 38,000 MW of resources
currently have already cleared PJM's interconnection queue but have
not been built due to external challenges, including financing,
supply chain and siting/permitting issues.
"Interconnection process reform is proceeding, but hurdles
remain for many projects outside of our process," said Stu Bresler, Executive Vice President – Market
Services and Strategy. "We are considering ways to accelerate those
who can successfully overcome those challenges and build."
PJM's capacity market, or Reliability Pricing Model, is one of
multiple wholesale electricity markets managed by PJM, with
Day-Ahead and Real-Time Energy markets accounting for the majority
of total costs.
Overall Results
The auction produced a price of $269.92/MW-day for much of the PJM footprint,
compared to $28.92/MW-day for the
2024/2025 auction. Capacity auction prices fluctuate annually based
on the need for investment in generation resources.
This year's auction procured 135,684 MW for the period of
June 1, 2025, through May 31, 2026. The total Fixed Resource
Requirement (FRR) obligation is an additional 10,886 MW for a total
of 146,570 MW.
The total procured capacity in the auction and resource
commitments under FRR represents an 18.5% reserve margin, compared
to a 20.4% reserve margin for the 2024/2025 Delivery Year.
Constrained Areas
While the price level across the RTO signals the need for
investment in generation throughout the footprint, prices are
higher, at the zonal cap, in the BGE zone in Maryland and the Dominion zone in Virginia and North
Carolina. This is due to insufficient resources inside those
regions and constraints on the transmission system that limit the
ability to import capacity. These prices indicate that those
regions would benefit from either additional resources, additional
transmission to allow increased imports into those regions, or a
combination of the two.
Auction Background
This PJM capacity auction, called the Base Residual Auction,
procures power supply resources in advance of the delivery year to
meet electricity needs in the PJM service area.
Auctions are usually held three years in advance of the delivery
year. The 2025/2026 auction was originally scheduled to be held in
May 2022, but auctions had been
suspended while FERC considered approval of new capacity market
rules. PJM has compressed its auction calendar to return to a
three-year-forward basis. The next BRA, for the 2026/2027 Delivery
Year, is currently scheduled for December
2024.
A detailed report of the results is available on PJM's capacity
market web page.
2025/2026 Capacity Prices
Delivery
Area
|
Capacity Price
($/MW-day)
|
Transmission Zone
Affected
|
RTO
|
$269.92
|
|
BGE
|
$466.35
|
Baltimore Gas and
Electric
|
DOM
|
$444.26
|
Dominion
|
PJM Interconnection, founded in 1927, ensures the reliability
of the high-voltage electric power system serving 65 million people
in all or parts of Delaware,
Illinois, Indiana, Kentucky, Maryland, Michigan, New
Jersey, North Carolina,
Ohio, Pennsylvania, Tennessee, Virginia, West
Virginia and the District of
Columbia. PJM coordinates and directs the operation of the
region's transmission grid, which includes over 88,115 miles of
transmission lines; administers a competitive wholesale electricity
market; and plans regional transmission expansion improvements to
maintain grid reliability and relieve congestion. PJM's regional
grid and market operations produce annual savings of $3.2 billion to $4 billion. For the
latest news about PJM, visit PJM Inside Lines at
insidelines.pjm.com.
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SOURCE PJM Interconnection