First power auction in three years yields boon for consumers

Prices may drop for electricity after bidding ends by nation’s largest power grid. Another telling sign: Coal power declines
Credit: (AP Photo/Charlie Riedel)
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In a bit of good news for consumers, the price electric customers pay to keep the lights on might dip somewhat beginning in June 2022.

The projected drop could occur as a result of a capacity auction held by the nation’s largest power grid, PJM Interconnection, the first in three years. The auction establishes the price energy suppliers get for providing standby power to the grid to maintain reliability during times of peak demand or extreme weather events.

This year’s auction resulted in a significant drop of 64% in the price of what suppliers get to provide standby power — or $50 a megawatt-day for the PJM footprint from the last auction in 2018 when the price was $140 MW-day, according to results posted last week. (One MW-day is equal to one megawatt of power produced by a plant in one day.)

In parts of the 13-state PJM footprint, prices were higher than that, including New Jersey where the price was set at $97.86 MW-day, but much lower than the $166.73 MW-day that most power plants received in 2018.

“It is good news and even better news’’ in some aspect of PSEG’s territory, according to Brian Lipman, litigation manager for the New Jersey Division of Rate Counsel. In the last auction, PSEG Power had been paid $204 MW-day in capacity payments, Lipman said.

What the savings depend on

Just how much consumers will save on their bills is also dependent on what kind of new costs will be passed on to them to achieve other parts of Gov. Phil Murphy’s clean-energy agenda and the need to modernize the power grid to accommodate renewable energy.

“I’m very happy with the lower prices. We’re delighted with the competitive markets,’’ said New Jersey Board of Public Utilities President Joseph Fiordaliso, who has threated to pull the state out of PJM’s capacity market. “The clean energy emphasis has increased. That’s tremendous.’’

PJM attributed the lower prices to a lower load forecast and reserve requirements, which led to a decrease in how much capacity it had to procure. In addition, suppliers had lower estimated costs for building new generation and overall lower offer prices from those participating in the auction.

READ: Prices go up for customers in capacity auction

WATCH: Murphy touts progress on clean energy

According to PJM, renewable energy, nuclear and natural gas generators saw the greatest increase in cleared capacity, a technical phrase that indicates those plants qualified for capacity payments. One of the chief criticisms of the auction by states is it could hinder development of cleaner energy options.

Nuclear generators cleared an additional 4,460 MW when compared to the last auction. Both solar and wind had additional resources clear the auction with the former increasing 942 MW and the latter, 312 MW, according to PJM.

Coal ‘too expensive’

‘’The increasing amount of competitive renewable resources clearing the auction — over 3,000 mw — shows that PJM markets are enabling renewable development and penetration, not hindering it,’’ said Todd Snitchler, president and CEO of the Electric Power Supply Association.

Coal generators, meanwhile cleared 8,175 fewer megawatts, according to PJM. “The writing is on the wall for coal. It is too expensive,’’ Lipman said.

Capacity payments account for roughly 15% of a suppliers’ income so any sharp decrease could affect a power plant’s profitability, a factor in the intense scrutiny of the process across the energy sector. Some states, including New Jersey, have criticized the auction, saying it boosts customers’ bills and hinders their efforts to promote cleaner energy options.

What the results of the latest auction mean for efforts to overhaul pricing rules governing what power units qualify for capacity payments and what ones do not, most likely subsidized plants, is still uncertain.

“It is difficult to draw too much into this because this market is constantly changing the rules, often to raise prices,’’ said Paul Patterson, an energy analyst with Glenrock Associates in New York. “It’s not encouraging for the merchant generators.’’

Will NJ exit PJM market?

The result of the latest auction reflect the significant volatility in prices suppliers get for the energy they supply, as well as the reserve power they provide to maintain the grid’s reliability.

Fiordaliso, who has presided over a BPU proceeding to look at the state exiting the PJM capacity market, noted no decision has been made on what the state will do. “We are in still somewhat of a holding pattern,’’ he said.

The PJM is expected to issue new rules on the capacity market by the end of the summer. In New Jersey, the most pressing concern involves whether ratepayer-subsidized offshore-wind projects qualify for capacity payments.

“Offshore wind is expensive,’’ said Glen Thomas, president of P3 Providers, a coalition of energy suppliers in the PJM. “Based on the current numbers, it is unlikely they will be competitive.’’

PSEG also is involved in reforming the rules governing the capacity auction to “better align the capacity market with the state’s carbonization policies,’’ according to a company spokesperson. The company declined to comment on the auction results.

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