PJM Capacity Prices Drop by 32 Percent

PJM Interconnection LLC’s capacity auction for the 2023/2024 delivery year cleared at $34.13 per megawatt-day, which is nearly 32 percent lower compared to the 2021 auction, according to the grid operator’s June 21 news release. The auction procured adequate resources to meet energy needs in PJM’s service area, which covers all or part of the 13 states and the District of Columbia.

Auctions are typically held three years before the year of delivery. The auction 2023/2024 was originally planned to take place in May 2020 but has been delayed as FERC considered approving new capacity market rules, specifically the Minimum Offer Price, or MOPR, rule. Last year’s auction was the first to be conducted by the nation’s largest grid operator under the expanded MOPR resulting from a 2019 order by the Federal Energy Regulatory Commission.

At this year’s auction, 144,871 megawatts of resources were purchased for the period June 1, 2023, through May 31, 2024, at a total cost of $ 2.2 billion. This amount is $1.8 billion less than the previous auction, for the 2022/2023 delivery year, adjusted for changes in fixed resource requirements, or FRR, obligations. The auction was priced at $34.13/MW-day for most of the PJM footprint, compared to $50/MW-day at the last auction in 2021. In some regions, prices are higher due to transmission limits.

For several reasons, prices at this year’s auction were significantly lower than at the previous auction. The major factor contributing to this lower price is the limited MOPR, which is applied to seven resources contributing 79 megawatts. Apart from MOPR, other likely factors affecting the auction results were: lower market seller offer cap; reduced lead time to delivery year; and an effective load carrying capability method to determine the capacity value of renewables and storage resources.

The total purchased capacity at the auction is 20.3 percent of the reserve margin compared to 14.8 percent of the required reserve for the delivery year 2023/2024. This considers the load and resource commitments under the FRR.

PJM has shortened its auction calendar to gradually return to a three-year perspective. The next annual basic residual auction for the delivery year 2024/2025 will take place in December.