NEW CHANGES FOR CAPACITY MARKETS RESULT IN HIGHER COST TO CONSUMERS

PJM CAPACITY NEWS:

The Federal Energy Regulatory Commission (FERC) approved new capacity performance requirements this month. This marks the largest change to PJM’s capacity market its design in 2006. The ruling allows for little exceptions for resources that fail to perform during the few hours of “emergency conditions” that are determined each year. However, this does give generators the ability to charge more for capacity even though they are not improving the grids reliability. In other words, generators will gain more revenue even if they do nothing during emergency conditions.

The ruling comes on the heals of the extremely cold winter of 2013-2014. During that winter, 22% of the PJM’s capacity failed in a single day causing millions in uplift payments. The PJM is bracing for the worst, expecting coal plant retirements over the next few years will create further reliability issues.

ISO-NE CAPACITY NEWS:

The New England Independent System Operator is reporting that the growing market for renewable energy is helping to keep the average cost of electricity down. It is currently expecting 2,400 MW of solar generation to be available by 2024. That coupled with more than 800 MW of wind being utilized as of the end of last year has helped to keep cost low.

However, according to the ISO, traditional generation is being forced to charge higher capacity costs to make up for the lost revenue due to renewables. The more that solar and wind generation becomes available the more financial pressure is put on coal and nuclear.

THE RUB:

The balance of energy demand with energy supply is one of the most important objectives of an energy system. Capacity markets are designed to ensure that there are enough electricity capacity resources to serve customers on the hottest and coldest days of the year.

The news outlined above regarding 2 of the major capacity markets in the U.S. is a mixed bag. Despite new rules for one and additional resources for the other, customers can expect more of the same.

Higher prices.

Matt Helland
Sr VP of Client Relations