PJM monitor recommends capacity market changes
The PJM Interconnection’s independent market monitor says in a new report that PJM’s wholesale energy, capacity and regulation markets produced competitive results through the first nine months of 2016, but recommended new changes to enhance competitiveness and efficiency.
The report, released by PJM’s Independent Market Monitor Monitoring Analytics, found that energy market prices decreased significantly over last year. The load-weighted average real-time location marginal price (LMP) was 24.7 percent lower in the first nine months of 2016 than in the first nine months of 2015, 29.32 per megawatt-hour (MWh) versus $38.94 per MWh. The report said energy prices in PJM were set, on average, by units operating at, or close to, their short run marginal costs, which is indicative of generally competitive behavior in a competitive market outcome.
“Our analysis concludes that the results of the PJM Energy, Capacity and Regulation Markets in the first nine months of 2016 were competitive,” said Joseph Bowring, President of Monitoring Analytics.
Net revenue, which is a key measure of overall market performance and investment incentive, was also down 23 percent for a new combustion turbine, 22 percent for a new combined-cycle plant, 60 percent for a new coal plant, 71 percent for a new diesel unit, 34 percent for a new nuclear power plant, 25 percent for a new wind farm, and 33 percent for a new solar installation.
Uplift charges, which are payments to generators who need to fill in energy supplies, were down 64 percent compared to last year, while congestion costs also decreased 28 percent to $320.7 million
While the report concluded the PJM’s aggregate energy market structure, participant behavior and market performance was competitive, local market structures were not due to “highly constrained” ownership of supply in local markets created by transmission constraints.
As a result, the report recommended some changes to increase efficiency and boost competitiveness for local energy providers. It said PJM should exclude energy efficiency resources from the supply side of the capacity market, as PJM load forecasts now account for future efficiency. It also recommended that, if PJM releases capacity in incremental auctions, it offer capacity at the base residual auction clearing price in order to keep the incremental auction price at competitive levels.
For demand response, the report suggested PJM not remove any defined load subzone and to maintain a public record of all created and removed subzones.
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