New York—PJM Interconnection real-time load-weighted average power prices in 2020 were the lowest in PJM's energy market history at $21.77/MWh, and down 20.3% from $27.32/MWh in 2019, with the largest factor being lower power generation fuel prices, PJM's market monitor said March 11.
Energy market prices were lower in 2020 than in any year since PJM markets were established in 1999 and power prices in PJM were already among the lowest in PJM's history in 2019, Monitoring Analytics said in its 2020 State of the Market Report for PJM.And of the $5.55/MWh decrease, 50.3% was a direct result of lower fuel costs, with the other major contributor to the decline in electricity prices being the "significant drop in demand as a result of both the mild winter weather and COVID-19," the IMM said.
On a cumulative basis, PJM load was down 4.0% compared to 2019, and load was down 3.4% after accounting for the impact of weather, the report said.
Fuel mixLooking at how load was met in 2020, "we see the continuation of a trend that started a while ago, which is that coal has been less competitive," Joe Bowring, Monitoring Analytics' president, said during a briefing call with reporters.
The share of coal declined considerably in 2020, nuclear output was basically flat and natural gas output was up despite the decline in load, with the share of gas in overall power generation output reaching 39.8%, Bowring said.
The share of gas in 2019 was 36.4%, according to the report. Coal-fired output declined to 19.3% in 2020 from 23.8% in 2019, wind output increased to 3.3% from 2.9% and solar also grew substantially from a low base rising to 0.5% in 2020 from 0.3%, which is a total increase of 38.2%, according to the report.
For coal, 2020 was part of an "ongoing and accelerating trend" given the low power prices in 2020 which made it very difficult for coal units to run economically," Bowring said.
The IMM estimates there are 2,361 MW of coal-fired generation out of a total installed capacity of nearly 50,000 MW at risk of retirement in PJM because the units are not covering their avoidable costs.
Total transmission line congestion costs were down slightly in 2020, which is a function of the fact that power prices were lower, load was lower and thus power transmission lines were constrained less often, Bowring said.
Capacity marketPJM is gearing up for its first capacity market auction since 2018 this May. The process has been held up by proceedings at the Federal Energy Regulatory Commission over PJM's Minimum Offer Price Rule, or MOPR, which has been a contentious issue.
FERC's MOPR approach was designed to ensure that state-level subsidies did not affect the wholesale power markets, but the states have ultimate authority over the power generation choices made in the states, the report said.
With recent leadership changes at FERC, the IMM expects the commission will eliminate the current MOPR rules.
With any such rule changes, "the capacity market design must accommodate the choices made by states to subsidize renewable or clean resources in a way that maximizes the role of competition to ensure that customers pay the lowest amount possible," the report said.
Given that FERC appears "poised to eliminate MOPR" the design of the capacity market has to be redone to explicitly accommodate state policies in a way that maximizes competitive outcomes "and that's what we're saying in the PJM stakeholder process," Bowring said.
Another important capacity market proceeding involves properly valuing intermittent renewable energy resource capacity value.
A significant level of renewable resources, operating with zero- or near-zero marginal costs, will result in "very low" electricity prices, the report said.
PJM has a proceeding underway that proposes to apply the Effective Load Carrying Capability approach to "defining a dynamic and market-based method for determining the capacity contribution of intermittent resources," which would be an advance but must be done correctly, the IMM said.
The monitor also highlighted that based on historical completion rates and derating factors, the contribution of renewable resources to capacity could be much lower than the total megawatts currently in the interconnection queue.
Of the 129,844.9 MW of renewable projects in the queue, only 16,541 MW, or 12.7%, are expected to enter service based on historical completion rates and be available to supply energy. And of those 16,541 MW, only 6,487.5 MW, or 5.0% of the total, will be capacity based on the average derate factors for wind and solar, the report said.
