This story was updated at 9:14 a.m. EDT.
Consumers across the Mid-Atlantic and Midwest will collectively pay $4 billion less for electricity in three years -- a savings attributed to reduced energy use and a wave of new natural-gas-fired power plants.
The region's grid operator, PJM Interconnection LLC, said capacity prices across most of its 13-state footprint fell to $100 per megawatt-day for the 2019-20 year, compared to $167.44 for 2018-19. Pockets of PJM will pay more, including Commonwealth Edison's service area in northern Illinois. Prices in that area, where transmission constraints limit imports, also fell, however, to $200 from $215.
The price drop, which was greater than analysts expected, occurred despite the phase-in of tougher performance standards for power plants and other resources used to satisfy demand at peak periods.
The results of PJM's auction also have implications for generators, some of which were looking to capacity revenues to help offset the effect of lower energy prices. Power producers in Illinois and Ohio -- both deregulated states -- are going even further, turning to state regulators and policymakers to approve subsidies for uncompetitive coal and nuclear plants.
A PJM executive said on a call with reporters yesterday afternoon that the lower auction clearing prices were squarely the result of a 1,600-megawatt drop in demand and the development of more than 5,000 MW of new gas-fired capacity.
"That significant penetration of lower-cost supply had a significant impact on the clearing prices that we saw in this auction," said Stu Bresler, PJM's senior vice president of markets.
The wave of new gas plants "demonstrates the confidence that the investors have in the ongoing and long-term competitiveness of these gas-fired resources," he said. "And the result is one from one which consumers will benefit."
PJM procures power plant capacity three years in advance to meet projected peak demand. The lead time is meant to provide time to build or upgrade power plants if needed.
Controversial performance standards approved by federal regulators last year are intended to ensure that plants run when they are needed the most. The rules establish penalties for units that fail to run when needed. Owners of the most reliable units can earn bonuses.
This year's auction was the second of a two-year phase-in of the performance rules. At least 80 percent of capacity procured had to meet the standards that include penalties for units that fail to run when needed. Owners of the most reliable units can earn bonuses.
The remaining 20 percent of capacity needed for reliability is considered a base product that's subject to the performance rules only during the summer. Throughout most of PJM, the so-called base capacity cleared at a discount of about $20 per megawatt-day.
Focus on Quad Cities nuke plant
In all, PJM cleared 167,306 MW in the auction representing a reserve margin of 22.4 percent, a level that exceeds PJM's 16.5 percent required reserve margin.
About 2,600 MW less coal-fired capacity cleared the auction and 1,500 MW less nuclear capacity cleared, Bresler said. He declined to say what nuclear units that cleared the 2018-19 auction failed to clear the 2019-20 auction.
Exelon Corp. said its Quad Cities nuclear plant along the Mississippi River and Three Mile Island plant in Pennsylvania failed to clear the auction.
Chicago-based Exelon is pressing the Illinois Legislature to act within the next week to approve a sweeping energy bill that would provide as much as $290 million a year to subsidize the Quad Cities plant and the Clinton nuclear plant if they are projected to lose money in the competitive market (EnergyWire, May 6).
Chris Crane, the company's CEO, said Exelon's board has authorized him to announce the shutdown of the plants this year if the bill doesn't pass by the end of the spring legislative session, scheduled to end Tuesday.
Just hours before auction results were published, hundreds of Exelon nuclear plant employees and supporters representing organized labor flooded the Illinois Capitol rotunda wearing "Next Generation Energy Plan" T-shirts and carrying placards for a rally to urge passage of the bill.
The at-risk nuclear plants provide 90 percent of the state's carbon-free electricity, and the closures would mean the loss of thousands of jobs and millions of dollars in tax benefits that are crucial to local government and schools, bill supporters said.
"This legislation is an all-of-the-above energy plan. These plants are the backbone of our communities," said Bryan Hanson, Exelon's chief nuclear officer.
In addition to more natural-gas-fueled capacity for 2019-20, the amount of renewable energy capacity and demand resources that cleared the 2019-20 auction was also up from last year, PJM said.
PJM said 335 MW of solar cleared the auction. Using a 38 percent capacity factor, that translates to 881 MW of nameplate solar capacity. And 969 MW of wind cleared, representing almost 7,454 MW of nameplate capacity, which is assigned a 13 percent capacity factor for the auction.
Very little of the wind capacity that cleared the auction and virtually none of the solar bid in under the more stringent performance rules, where owners could face penalties if they're called on to provide energy and cannot deliver.
The same is true for demand-response resources. In fact, the 10,348 MW of demand response that cleared was down from 11,084 MW the previous year. And less than 10 percent of what cleared -- 614 MW -- did so under the performance standards.
The role of demand response and intermittent renewable energy sources is a big question heading into next year's auction, where all of the capacity procured by PJM will be subject to the performance standards.
Meanwhile, a record 1,515 MW of energy efficiency cleared the 2019-20 auction, and almost all of it was bid in under the more stringent performance standards.
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