Market Monitor Finds PJM Wholesale Electricity Markets Competitive
EAGLEVILLE, Pa., May 12, 2016 /PRNewswire/ — PJM Interconnection’s wholesale electric energy, capacity and regulation markets produced competitive results during the first three months of 2016, according to the 2016 Quarterly State of the Market Report for PJM: January through March, released today by Monitoring Analytics, LLC, the Independent Market Monitor for PJM.
The Independent Market Monitor, Joseph Bowring, announced findings of the report today. The report is the Independent Market Monitor’s assessment of the competitiveness of the wholesale electricity markets managed by PJM in 13 states and the District of Columbia. The report includes analysis of market structure, participant behavior and market performance for each of the PJM markets.
“Our analysis concludes that the results of the PJM Energy, Capacity and Regulation Markets in the first three months of 2016 were competitive,” Bowring said.
Energy market prices decreased significantly from the first three months of 2015 as a combined result of lower fuel prices and lower demand. The load-weighted average real-time LMP was 47.4 percent lower in the first three months of 2016 than in the first three months of 2015, $26.80 per MWh versus $50.91 per MWh.
Energy prices in PJM in the first three months of 2016 were set, on average, by units operating at, or close to, their short run marginal costs. This is evidence of generally competitive behavior and resulted in a competitive market outcome.
Net revenue is a key measure of overall market performance as well as a measure of the incentive to invest in new generation to serve PJM markets. In the first three months of 2016 compared to the first three months of 2015, average energy net revenues decreased by 62 percent for a new combustion turbine, 51 percent for a new combined cycle, 82 percent for a new coal plant, 85 percent for a new diesel unit, 56 percent for a new nuclear plant, 38 percent for a new wind installation, and 62 percent for a new solar installation.
Total energy uplift charges decreased by $147.3 million or 79.0 percent in the first three months of 2016 compared to the first three months of 2015, from $186.4 million to $39.1 million. The relatively low uplift charges paid in the first three months of 2016 were primarily a result of mild weather conditions and low fuel prices and correspondingly low LMPs.
Congestion costs decreased in PJM by $339.5 million or 53.7 percent, from $631.7 million in the first three months of 2015 to $292.2 million in the first three months of 2016. Congestion reflects the underlying characteristics of the power system, including the capability of transmission facilities, the fuel costs and geographic distribution of generation facilities and the geographic distribution of load. Congestion is neither good nor bad, but is a direct measure of the extent to which there are multiple marginal generating units dispatched to serve load as a result of transmission constraints, and the costs of operating those units. ARRs did not serve as an effective way to return congestion revenues to load. ARR and FTR revenues offset 83.6 percent of the total congestion costs within PJM for the first ten months of the 2015 to 2016 planning period.