PJM Capacity Auction Impact On Exelon And Other Electric Utilities
For those who follow the electric utility industry, the PJM capacity auction is usually one of the big events on the calendar. (PJM is the regional transmission organization that essentially controls the operation of the electric grid from New Jersey to Chicago.) This year’s auction completed in August was no exception.
The capacity auction was created a number of years ago to help support the reliability of the electric grid in a competitive market. The auction takes place three years before the capacity is needed, so this year’s auction was for the 2018/19 planning year. Electric demand fluctuates by time of day and by time of the year. There are some power plants that are needed for those few hours each year when demand is at its highest, but otherwise don’t have to run. These plants would never stay open if they were only paid for the few hours that they operate. The capacity auction essentially pays plants a standby fee to keep them open so that there is plenty of power available on high demand days. This fee is in dollars per megawatt of capacity for each day of the year. The size of the fee is determined in the capacity auction, and varies by location within PJM based on constraints in the electric transmission system.