Wholesale capacity prices are trending down in the mid-Atlantic region. The region’s wholesale market operator, PJM Interconnection (“PJM”), has announced the results of its May 2016 capacity auction for Delivery Year 2019/2020, which are down from the August 2015 auction for Delivery Year 2018/2019. The May 2016 auction cleared 167,305.9 MW and set the price for Capacity Performance Resources in non-constrained areas at $100/MW-day. By comparison, the August 2015 auction cleared 166,836.9 MW and set the price for Capacity Performance Resources in non-constrained areas at $164.77/MW-day. These results are important because they follow the implementation of PJM’s Capacity Performance program, which is intended to ensure resource performance characterized by sustained and predictable operation when needed. The Federal Energy Regulatory Commission (“FERC”) accepted PJM’s proposal in June 2015. In addition to Capacity Performance Resources, the auction includes Base Capacity Resources, which can consist of generation, demand response or energy efficiency resources. Capacity Performance Resources that do not operate when needed are subject to non-performance charges.
According to PJM, the May 2016 auction results were lower than some had anticipated due to market fundamentals that included a lower load forecast and the availability of new natural gas-fired generation. One takeaway from the results highlighted by PJM is a demonstrated confidence in the competitiveness of natural gas-fired generation and natural gas fuel prices. Before the inclusion of Capacity Performance Resources, the capacity price for Delivery Year 2017/2018 for non-constrained areas was $120/MW-day. While the future retirement of coal-fired generators may have an impact on the pool of available resources, in a world with little to no load growth and new natural gas generation, steady capacity prices could be around for a while.