Consultants see PJM capacity prices trending higher in upcoming auctions

Ron Norman, an energy industry expert at PA Consulting Group, discussed the results of the May PJM Interconnection LLC capacity market auction and its impact on future auctions.

Ron observed that the latest auction saw more new generation and fewer retirements than his own previous expectations.

He was quoted, "On one hand I wasn't surprised because RPM always surprises, so that much was to be expected. On the other hand, the details that caused the surprise were interesting." Ron pointed out the 5,000 MW of new gas-fired capacity that cleared and only 6,000 MW of capacity retiring, less than the 8,000 MW to 9,000 MW that PA Consulting had been expecting to exit.

Ron said, "I would not be at all surprised if there was a significant shift back in the market because some of that capacity that was sort of hanging on might retire now that prices are low and might remain depressed longer now that all the new capacity entered."

Discussing environmental regulations, Ron said that tightening the exemption from the minimum offer pricing rule (MOPR) could help improve the PJM RPM market constructs. He noted that in addition to adjustments to the MOPR, extending the New Entry Pricing Adjustment (NEPA) period to five or even 10-years from the current three-years for any new entrant would drastically improve the tenor of the market. He said that with that surety, states would unlikely feel the need to circumnavigate the markets the way New Jersey and Maryland have, in order to provide sufficient tenor.

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