PJM power capacity auction may be worth over $10 bln

Wed May 9, 2012 4:45pm GMT
 

* Capacity prices seen in the $150-$190/MW-day range
    * FirstEnergy Ohio zone likely to clear over RTO
    * Auction to close May 11

    By Scott DiSavino	
    May 9 (Reuters) - U.S. electric grid operator PJM hopes to
secure at least 160,000 megawatts (MW) of power resources for
the 2015/2016 delivery year in a capacity auction this week
potentially worth more than $10 billion, according to energy
experts.	
    PJM opened its capacity auction, which the grid operator
calls a Base Residual Auction (BRA), on May 7. PJM said it will
post the results after the auction closes on May 11.	
    If the auction clears between $150-$190 per MW-day, as
analysts expect, the accepted generation resources could receive
between $8.7 billion and $11.1 billion for 2015-2016.	
    PJM operates the nation's biggest power grid serving 60
million people in 13 U.S. Mid-Atlantic and Midwest states and
the District of Columbia.	
    The capacity auction, known in PJM as the Reliability
Pricing Model (RPM), procures power resources to support
forecast demand three years in the future. The resources include
planned and existing power plants, demand response and energy
efficiency programs.	
    PJM posts one price for the entire grid known as the
Regional Transmission Operator (RTO) price and separate
locational prices for regions with forecast transmission
constraints.	
    Ron Norman, an energy industry expert at PA Consulting, a
consulting firm, forecasts an RTO-wide capacity price in the
$160-$190 per megawatt-day (MW-day) range.	
    U.S. power analysts Daniel Ford and Gregg Orrill at Barclays
Capital, a British investment bank, said in a report they expect
the RTO to clear in the $150 per MW-day range.	
    That would be higher than the RTO-wide capacity price of
$125.99 per MW-day in last year's auction for the 2014/2015
delivery year.	
    That means a 100-MW power plant that was accepted in the RTO
region in the 2014/2015 auction would receive about $12,600 a
day or about $4.6 million for the delivery year in capacity
payments.	
    Norman, of PA Consulting, expected most of the PJM grid
would clear at the RTO price except for FirstEnergy Corp's
 American Transmission System Inc (ATSI) zone in Ohio.	
    Norman said the ATSI zone would likely clear at a premium
north of $250 per MW-day in large part because the FirstEnergy
region could see the retirement of several mostly older,
coal-fired power plants, which will tighten reserve margins in
that area. See 	
    The Barclays analysts also expect the ATSI zone to clear at
a premium to the RTO in the $250-$300 per MW-day or more range
due to the plant shutdowns.	
    Barclays also said New Jersey power company Public Service
Enterprise Group Inc's Public Service zone in New Jersey
could clear separately from the rest of the RTO in the $165-$187
per MW-day range.	
    	
    COAL PLANTS TO RETIRE	
    Energy companies have asked PJM for permission to retire
about 15,000 MW of mostly coal-fired generating capacity from
the 2015-2016 auction in part to comply with stricter federal
environmental rules.	
    For a Factbox on coal units to retire, see 	
    Norman said the retirement of all 15,000 MW was unlikely,
but noted retirements in the 7,000 MW to 9,000 MW range were
possible.	
    Last week, FirstEnergy said PJM told the company to keep
three old, coal-fired plants in Ohio capable of generating about
885 MW in service to maintain reliable supplies of electricity.
The plants had been earmarked for retirement this year.
 	
    Norman said the premium capacity price for the FirstEnergy
ATSI zone would likely be a short term phenomenon. He said the
ATSI price could collapse to the RTO price in the 2016/2017
auction if transmission upgrades continue to move forward,
making it easier to transmit more power into and out of the ATSI
area.	
    	
    The following table reflects historic RTO-wide capacity
clearing prices. Capacity prices in some transmission
constrained regions were higher than the RTO-wide price,
according to a report by PJM.	
    	
Year        RTO Price        Capacity          Reserve	
          (MW-day)          (MW)             Margin	
    	
2007-8        $40.80        129,409          19.2 pct	
	
2008-9       $111.92          129,598          17.5 pct	
    	
2009-10      $102.04          132,232          17.8 pct	
    	
2010-11      $174.29          132,190          16.5 pct	
    	
2011-12      $110.00          132,221          18.1 pct	
    	
2012-13      $16.46           136,144          20.9 pct	
    	
2013-14      $27.73           152,743          20.2 pct	
    	
2014-15      $125.99          149,975          19.6 pct

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