Dive Brief:

• PJM Interconnection's 2019/2020 capacity auction netted 167,306 MW, the grid operator announced yesterday, but at "competitive prices" that surprised analysts and could force some less-competitive power plants to close.
• The clearing price was $100/MW-day for the majority of the region, a sharp decline from $164.77/MWd generators saw in the last auction. The highest prices came in Commonwealth Edison's service area, at more than $200/MWd, but that was also down from $215/MWd the year before.
• The grid operator said energy efficiency was in part responsible for the lower prices, in addition to the impact of low natural gas prices. About 1,500 MW of efficiency resources cleared the auction, with 1,058 MW clearing as capacity performance, a designation that carries stricter delivery standards.

Dive Insight:

PJM's capacity auction continues to showcase the rise of efficiency and demand management, and the end result may be continued pressure on marginal plants.

"Prices were lower than some analysts had expected and lower than the last year's auction results simply because of market fundamentals of changes in supply and demand," Stu Bresler, senior vice president of markets, said in a statement from the grid operator. "The load forecast is lower, and there was a large amount of new gas-fired combined-cycle generation clearing for the first time in the auction."

A total of 10,348 MW of demand response cleared in the 2019/2020 auction with 613.7 MW clearing as capacity performance. On top of that, the 1,515 MW of efficiency cleared as well, in addition to 335 MW of solar generation capacity and 969 MW of wind generation capacity.

More than 5,000 MW of new gas-fired generation were bid into the auction, also contributing to lower prices.

"The results demonstrate investors' continued high degree of confidence in the competitiveness of natural gas-fired generation and natural gas prices going forward and that they are willing to bear the risk of that investment," Bresler said. "The market enables consumers to benefit from assured reliability at the most competitive, economic cost."

PJM said in its auction report that changes impacting electricity demand included a lower target reliability requirement of 158,984 MW, which was 1,624 MW lower than the target reliability requirement in the 2018/2019 auction.

Bloomberg reports clearing prices came in substantially below analyst expectations. UBS AG had predicted clearing prices around $125/MWd, while Tudor Pickering Holt had forecast a range up to $150.

In two constrained areas, prices were closer to those estimates. For Eastern MAAC the capacity performance price is $119.77/MWd, and for ComEd the price is $202.77/MWd. In Baltimore Gas & Electric's territory prices were very-slightly higher, at $100.30/MWd.

While the lower capacity prices may translate into savings for consumers, they are bad news for operators of the region's more expensive power plants. 

Exelon announced some of their PJM nuclear plants — Quad Cities, Three Mile Island and a portion of Byron — did not clear the capacity auction. Though the company is committed to operating Byron through 2020, it has said it will retire the Quad Cities plant if it does not receive financial support from Illinois legislators, along with the Clinton nuclear plant, which competes in the MISO market.

"Without passage of comprehensive energy legislation that recognizes nuclear energy for its economic, reliability and environmental benefits to Illinois, we will be forced to close Quad Cities and Clinton," CEO Chris Crane said in a statement. The legislative session there ends May 31.