Market Monitor Finds PJM Wholesale Electricity Markets Competitive
EAGLEVILLE, Pa., May 11, 2017 /PRNewswire/ — PJM Interconnection’s wholesale electric energy, capacity and regulation markets produced competitive results during the first three months of 2017, according to the 2017 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 2017 were competitive,” Bowring said.
One of the benefits of competitive power markets is that changes in input prices and changes in the balance of supply and demand are reflected immediately in energy prices. PJM real-time energy market prices increased in the first three months of 2017 compared to the first three months of 2016. The load-weighted average real-time LMP was 13.0 percent higher in the first three months of 2017 than in the first three months of 2016, $30.28 per MWh versus $26.80 per MWh. Energy prices were higher primarily as a result of higher fuel prices.
Energy prices in PJM in the first three months of 2017 were set, on average, by units operating at, or close to, their short run marginal costs, although this was not always the case during high demand hours. This is evidence of generally competitive behavior and resulted in a competitive energy 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. Energy net revenues are significantly affected by energy prices and fuel prices. Energy prices and fuel prices were higher in the first three months of 2017 than in the first three months of 2016. For gas fired units, gas prices increased more than energy prices, resulting in lower energy market net revenues for a new combustion turbine (CT) and a new combined cycle (CC), the most commonly built type of new unit in PJM. In the first three months of 2017, average energy market net revenues decreased by 66 percent for a new CT and 29 percent for a new CC. For coal and nuclear plants, energy net revenues were higher because of higher energy prices. In the first three months of 2017, average energy market net revenues increased 17 percent for a new coal plant and 17 percent for a new nuclear plant.
Total energy uplift charges decreased by $13.9 million or 35.2 percent, from $39.5 million in the first three months of 2016 to $25.6 million in the first three months of 2017.
Total payments for demand response programs decreased by $109.6 million or 48.5 percent, from $224.6 million in the first three months of 2016 to $115.1 million in the first three months of 2017. The capacity market is the primary source of revenue to participants in PJM demand response programs. In the first three months of 2017, payments to demand response resources in the capacity market decreased by $109.5 million or 48.7 percent, while payments to demand resources in the economic program decreased by $0.3 million or 38.4 percent.
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