PJM capacity auction reform spurs $250 million in investments
The operators of generation units that cleared in the PJM Interconnection’s Capacity Performance auction for the 2016-17 planning year have spent or are spending about $250 million in response to the new capacity market’s tougher reliability requirements, stakeholders learned Monday.
During the PJM Members Committee monthly information webinar, Chantal Hendrzak, PJM manager of operations development, said the grid operator has so far surveyed operators of about 100 units with a capacity of about 62,000 MW, out of the 93,000 MW of total resources committed in the transitional CP auction for the 2016-17 delivery year.
About half of the capacity for which investments were reported to comply with the requirements have been or are performing long-term maintenance to enhance unit longevity. Such projects include boiler work, condenser replacements, new equipment installations, winterization projects and “major unit overhaul upgrades,” according to Hendrzak’s written presentation.
Firming up fuel supply constituted the second-largest category of work — 29% of the generation capacity undergoing investments. Such projects included establishing a dual-fuel capability, installing on-site fuel storage or connecting to a second nearby pipeline, Hendrzak said.
The third largest specific type of upgrade was for environmental upgrades so that units could operate for longer periods without violating emissions rules, Hendrzak said. This category made up 6% of the total.
The next largest action taken in reaction to the CP market’s creation was for operators of generators that were to be mothballed or retired to instead reverse those actions “as a result of sustainable market conditions,” according to Hendrzak’s report.
In response to a stakeholder question, Hendrzak said the PJM survey did not ask respondents to distinguish between investments they would have made in any event as a result of the Polar Vortex event of the winter of 2013-14, which at one point resulted in 22% of PJM’s generation capacity going on a forced outage and ultimately resulted in the establishment of the CP market construct.
The Polar Vortex event resulted in extraordinarily high power prices in PJM, but prices have since dropped sharply due to a glut of natural gas from regional shale gas formations.
Joseph Bowring, president of Monitoring Analytics, PJM’s independent market monitor, said the $29.32/MWh load-weighted average LMP for the first nine months of 2016 was the lowest it has been since 2000.
“As the cost of inputs has gone down in 2016 and loads have been fairly modest, prices have gone down accordingly,” Bowring said.
PJM’s overall load-weighted real-time LMP in September fell month to month and year over year, as area gas prices weakened substantially, according to a written report by Jennifer Warner-Freeman, PJM market analysis senior economist. Loads and the heating and cooling degree day totals fell month to month, but were up year over year, she added.