The complex dance between environment and energy: Predictions for PJM's May capacity auction

Ron Norman and Ethan Paterno, energy industry experts at PA Consulting Group, discussed the forthcoming May PJM Interconnection LLC capacity market auction with Lisa Cohn of SNL Energy.

Ron and Ethan noted that environmental regulations will make their mark on PJM’s capacity auction, helping raise capacity prices for 2015-2016 to levels as high as $250/MW-day in one area.

They were quoted in the article as saying “what's expected to happen during the auction is a function of supply and demand, driven by environmental regulations and the low price of natural gas.”

Ethan explained that "the prevailing view is that gas prices will remain quite low for some substantial amount of time... in fact, gas prices aren't expected to rise to last year's levels until 2016.”

With utilities withdrawing 15,000 MW of coal plants from the auction, fewer plants will be able to provide capacity. Ron and Ethan said that “tighter supplies will lead to higher capacity prices.”

Ron observed that this means PJM will see low gas prices for energy and high capacity prices. "Gas prices can go down which through these dynamics result in capacity going up," he said.

The article points out that Ron and Ethan’s analysis and predictions for the PJM LLC capacity market auction illustrate the complex interaction between environmental issues and energy.

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