Dive Brief:

• Total costs dropped $4.4 billion and prices dropped to $50/MW-day compared to the previous auction, during PJM's years-delayed capacity auction concluded on Wednesday, due largely to lower load forecasts, which translated to lower reliability requirements, according to the grid operator.

• Nuclear generation cleared the most additional capacity compared to the previous capacity auction, at an additional 4,460 MW. Gas plants followed with a 3,414 MW increase over the previous auction, and solar and wind saw 942 MW and 312 MW increases, respectively. Meanwhile, coal-fired power cleared 8,175 fewer MW than the last auction.

• PJM's auction was delayed following a multi-year debate over a controversial Federal Energy Regulatory Commission rule that ultimately raised the minimum offer price (MOPR) for state-subsidized resources bidding into capacity auctions. Some resources subject to the MOPR did not clear the auction, according to PJM, though it's unclear if they would have cleared without the MOPR either.

Dive Insight:

Thursday's auction results are the first, and potentially the last, the MOPR rule will apply to. Despite initial concerns about the impact of the rule on resources that receive state subsidies — in particular, wind, solar and nuclear — the first few PJM auctions were not expected to harm the clean energy resources' ability to compete too much, given adjustments made in the grid operator's compliance filing with FERC in an attempt to soften the potential blow.

Nuclear power exceeded expectations, with many of the plants that were expected to be subject to the MOPR — and potentially not clearing as a result — likely clearing, said Himanshu Pande, senior manager of energy power markets at consulting firm ICF. It's likely the plants he and other ICF analysts were observing cleared, including Exelon's Quad City nuclear plant in Illinois, PSEG and Exelon's Salem nuclear plant in New Jersey and PSEG's Hope Creek nuclear plant in New Jersey. They likely did so through successfully appealing for PJM's unit-specific exemption to the MOPR, which allows them to bypass default numbers PJM may assign a resource because of its status as a state-subsidized resource.

Further, low prices persisted despite 4.4 GW of additional nuclear resources clearing, indicating there was "significant under-bidding" by nuclear power generators in this auction, according to Pande. 

"In the prior auction — at a much higher price — we had less amount of nuclear capacity clearing," he said. "And this time at a significantly lower price we had much more nuclear capacity clearing, which clearly shows that some dynamics changed from the nuclear front," including a new administration that has been bullish on clean energy targets.

That said, the MOPR likely did affect the auction, according to PJM, but the effect this first round appears to be minimal.

"There probably was some impact of the MOPR in this auction," Stu Bresler, PJM's senior vice president of market services, told reporters after the markets closed Wednesday. He was not able to discuss specifics on what resources were subject to the MOPR, nor which resources subject to the MOPR didn't clear. But, he added, the overall impacts of the MOPR did not seem particularly noteworthy given the increases in wind, solar and nuclear over the previous auction. A total of 1,728 MW of wind cleared and 1,512 MW of solar.

"When you look at the pricing results from this auction together with the fact that there were such significant increases in wind and solar [and] in committed nuclear resources, it's hard to see how the MOPR had a significant or a large impact on this option. And that's really what we expected," he said.

Many of the resources already had interconnection agreements, which allowed them to avoid the MOPR, and those that were subject to the MOPR went through a "very detailed user specific review," as laid out in the final MOPR order, which could have allowed some resources to get a lower bidding floor.

FERC Chair Richard Glick has indicated that he wants to see the MOPR eliminated and a new tariff put in place by this summer, before the grid operator's next auction in December, or the commission may take up the issue itself, given the potential longer-term impacts of the rule on clean energy resources. PJM has also said it wants to end the policy, in part due to state pushback, and in April laid out an initial strategy for undoing the MOPR.

But merchant generators, who had initially pushed for the MOPR due to concerns that state-subsidized resources were depressing market prices and making new gas plants less competitive, now argue the latest auction is a sign that the MOPR shouldn't be eliminated in a hurry.

"[T]here is no urgency to rush additional reform following the implementation of the [MOPR]," said Todd Snitchler, CEO of the Electric Power Supply Association, the trade group for competitive suppliers, in a statement. "EPSA has consistently pushed for an auction to run under the current MOPR rules before rushing to significantly change the market. Now, as PJM continues to proceed quickly down a path to eliminate the MOPR, today's results confirm there is no need to rush. PJM and its stakeholders have time to holistically address market reforms, including the MOPR, without subjecting consumers to claims of MOPR-driven cost increases."

The increase in wind, solar and nuclear that cleared the capacity auction were joined by an additional 1,979 MW of energy efficiency, though demand response dropped 2,314 MW compared to the previous auction. Alongside lower load forecasts, transmission capability improved in some constrained areas, which also allowed the reliability requirement to drop and contributed to the dramatic price drop, which produced an average price of $50/MW-day, compared to $140/MW-day for the 2018 auction.