Dive Brief:
- Federal regulators this week approved PJM Interconnection's capacity performance proposal, meaning the new procedures can be incorporated into the annual capacity auction for 2018-2019 delivery.
- PJM proposed new performance standards following poor generator performance during the polar vortex of the 2013-2014 winter, where at one point more than 20% of generation was unavailable.
- The grid operator can now move ahead with its base residual auction, and SNL reports analysts expect the new rules could send capacity prices higher. Federal approval brought a rise in generator stocks this week.
Dive Insight:
PJM had delayed its capacity auction pending a decision from FERC, but can now move ahead and has slated it to begin Aug. 10.
"In approving PJM's Capacity Performance proposal, the Federal Energy Regulatory Commission has recognized the need to ensure better generator performance and fuel assurance," PJM CEO and President Terry Boston said in a statement. The grid operator said it is reviewing the order to fully undersand it, but at first look Boston said it "appears to largely support PJM's pay for performance model."
The proposal was developed through an expedited process last year after cold weather in early 2014 took 22% of PJM generation offline. The capacity performance plan aims to provide enhanced incentives for resources to be available when needed most, and to reduce price spikes during system emergencies. PJM said the plan provides "clearly defined obligations for capacity resources and will enhance reliability at a reasonable cost."
That "reasonable cost" has the markets taking a hard look at generators' stock prices. SNL reported share values of generators in the PJM market showd "notable gains" folllowing the decision. Morgan Stanley has estimated capacity prices will range around $50 or $60/MWday under the new system.
