Energy News Update: August 6, 2024 PJM Skyrocketing Capacity Increases Impacting Cost of Electricity, May Portend Increases Forthcoming Nationally https://youtu.be/2VVNYAVZuw4
Energy News Update: August 6, 2024
Our July 29th Energy Update, said the risk of our entering a 2nd Natural Gas Cyclical Bull Market within an ongoing Secular Bull Market was increasing. Therefore, we recommended securing long-term Electricity and Gas agreements when your present agreements expire.
In today’s report, we will explain why last week’s PJM Capacity Auction will increase the cost of Electricity not only within the PJM footprint, but portends increases in other Regional Transmission Organizations (RTO) as well.
The PJM is the largest RTO in America serving all or parts of:
On July 30th, the PJM announced the results of their 2025/2026 Base Residual Auction (BRA), which you can access in the following link, the report revealed the cost of Capacity will increase in most zones from $28.92 to $269.92 $/MW-Day, and increase the cost of Electricity more than 2 cents per kWh starting in July 2025 in most zones.
The PJM warned in their report:
“The significantly higher prices in this auction confirm our concerns that the supply/demand balance is tightening across the RTO.”
Which they warned was forthcoming in their Feb 24, 2023 report. In that report they said,
“The amount of generation retirements appears to be more certain than the timely arrival of replacement generation resources and demand response, given that the quantity of retirements is codified in various policy objectives, while the impacts to the pace of new entry of the Inflation Reduction Act, post-pandemic supply chain issues, and other externalities are still not fully understood.”
The bottom line is we believe the concerns expressed in the PJM reports won’t be confined to the PJM RTO, they are endemic throughout America’s RTOs, and as a consumer of Electricity there is little you can do about the Capacity increases imbedded in your cost of Electricity.
But as a consumer of Electricity in a deregulated state, you can mitigate the effects of the increases by reserving Electricity while Natural Gas, the largest source of power for the generation of Electricity is near its lowest price since 2000:
In our July 29th Energy Update, we explained why we may be in the early stages of a Secular Bull Market, which could last for many years. We said Natural Gas is still by far the largest source of power for the generation of Electricity in America and will remain so for at least the next 5 to 10 years.
Capacity is the 2nd largest component of the cost of Electricity, but you can keep your cost as low as possible by reserving long-term Electricity agreements while the largest component is near its lowest price since 2000.
Not every client’s risk tolerance and hedging strategy are the same, but hopefully, today’s report will help put into perspective your risk/reward opportunities. We invite you to call one of our energy analysts to help you plan a hedging strategy appropriate for your situation.
Ray Franklin
Energy Professionals
Senior Commodity Analyst
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