PJM Interconnection has released the results of its annual capacity auction, which successfully procured diverse and competitive power supplies for the 65 million people PJM serves. Notably, both wind and solar resources saw big increases over last year’s auction.
The auction procures power supply resources to meet electricity needs for three years from now in the PJM service area, which includes all or parts of 13 states and the District of Columbia. PJM procured 163,627 megawatts of resources for the period of June 1, 2021, to May 31, 2022.
The auction produced a price of $140/MW-day for much of the PJM footprint, compared to $76.53/MW-day last year. Prices are higher in some regions due to transmission limits, notes PJM.
A total of 11,126 MW of demand response cleared in the auction, representing an increase of 3,305 MW compared to last year’s auction. A total of 3,832 MW of energy efficiency also cleared, representing an increase of about 1,100 MW. A total of 1,417 MW of wind cleared in the auction, representing an increase of 529 MW. Notably, solar increased more than fourfold, with around 570 MW clearing.
Demand response consists of retail customers who commit to voluntarily reduce their electricity usage during periods of high system demand and power prices. Energy efficiency accounts for the permanent installation of efficient lighting, refrigerators, air conditioners, motors, weatherization and process improvements that exceed then-current building codes, appliance standards, or relevant state or federal standards.
These resources can either bid as an annual resource or, if they can only produce power seasonally, aggregate with another resource to meet PJM’s performance standards. For example, wind generators, whose capacity is greater in the winter, combined through the auction clearing mechanism with demand response and solar resources, whose capacity is greater in the summer.
PJM says the auction cleared 500 MW more coal generation than last year’s auction. The auction also cleared 1,000 MW more gas-fired generation than last year’s auction, including one new combined cycle plant. The auction cleared 19,900 MW of nuclear generation, about 7,400 MW less than last year’s auction.
The total procured capacity in the auction represents a 21.5% reserve margin, compared to a 15.8% required reserve for the 2021–2022 delivery year. A healthy reserve shows that PJM will have more than adequate resources to meet electricity use needs and can lower the price for electricity, says the grid operator.
Overall, in most locations, prices in this year’s capacity auction were higher than prices in last year’s auction due to several factors, according to PJM:
- Continuing low energy prices, which causes generators to seek revenues in the capacity market through higher offers;
- An increase in the reference resource cost resulting from a decrease in energy revenues and an adjustment for inflation; and
- A decrease in total cleared capacity, including a reduction in the number of new generators.
Those factors driving higher prices were partially offset by a lower reliability requirement because of lower forecasts of future electricity demand, notes PJM.
“PJM’s markets continue to retain and attract a diverse set of resources and promote competition to support reliability of the grid,” says PJM’s president and CEO, Andy Ott. “The high-performing resources participating in our markets ensure that customers have reliable electricity at the lowest reasonable cost.”
More details on the auction are available here.