Power prices across the country have been on the rise since the summer of 2021 and PJM is certainly no exception. Anyone with an electricity supply contract expiring in the next 12 months, has seen a significant increase in pricing, upwards of 120% higher than where prices were at the end of 2021. Figure 1 shows the historical trading range for forward wholesale electricity prices for calendar strip 2023 to 2027 at PJM’s largest trading hub, PJM West.

PJM Summer Spot Prices Now Higher Than Winter

Anyone who has entered into a new electricity agreement in the last twelve months knows that prices are between two and three times higher than previous contracts. One year ago, wholesale electricity for calendar year 2023 was trading at $30.77/MWh at the PJM West hub in Western Pennsylvania. In early May 2022, it peaked at $88.35/MWh, a nearly three-fold increase. This rapid rise in electricity futures has created sticker shock for many electricity and natural gas buyers over the last year. And while this may not be news, some buyers may be surprised to learn that spot electricity prices in PJM are at their highest levels in over ten years.

On June 21, 2022, PJM posted the results of its capacity auction, also known as the Reliability Pricing Model (RPM), for the planning year June 2023 to May 2024. The execution of this auction has been postponed multiple times over the last few years due to FERC rulings on the validity of the PJM auction’s design. Differences between FERC and PJM seem to have finally been resolved to the extent to allow the auction to proceed. This is important because these latest auction results give the market some much-needed clarity into future capacity costs, which are a major cost component of next year’s overall electricity costs for all retail customers in PJM states.

An Overview of Coincidental Peak Costs by ISO

Coincidental Peak (CP) is the measurement of an electricity meter’s actual usage at the time of the regional grid’s highest demand and determining that meter's share of the entire grid’s demand. This concept of identifying a facility’s share of the grid’s total maximum demand is often used in determining the allocation of specific cost components. The specific methodology of how that equation works and which cost components it impacts varies from region to region, and often even utility to utility, and even by customer class, but the overall concept is the same. In this post, we explain how this works in each of the major, deregulated electricity regions, and detail which costs are the most impacted by this variable.

A Review of Resources Adequacy Risk in PJM

On May 17, 2022, PJM released the second phase of its “living study”, titled Energy Transition in PJM: Emerging Characteristics of a Decarbonizing Grid, which analyses the potential impacts associated with the evolving resource mix. The report, which follows the initial framework released in December 2021, studies three scenarios: Base, Policy, and Accelerated (see Figure 1). Each scenario represents an increasing amount of annual energy in PJM served by carbon-free generation in 2035: 40%, 50%, and 70% respectively. For reference, according to Monitoring Analytics, the grid operator’s market monitor, in 2021 39% of the power produced in PJM was from carbon-free resources.

Pennsylvania joins RGGI, Largest Coal-Fired Power Plant Announces Continuation of Operations. 

On April 23, 2022, Pennsylvania became the 12th member of the Regional Greenhouse Gas Initiative (RGGI), a market-based cap-and-invest initiative that sets an allowance on CO2 emissions and requires power plants to pay to offset their carbon emissions. As part of RGGI, PA will be required to make annual emissions reductions of 3%.

A Two-Year Pause on Solar Projects in PJM

The geographic area served by the PJM Interconnection spans from Virginia all the way to northeast Illinois. And despite the name of the hit show, “It’s Always Sunny in Philadelphia”, this is not a particularly sunny part of the country. It may be a surprise, then, to learn that PJM is overwhelmed by applications for new solar farms. In fact, PJM is proposing a two-year pause on reviewing new generation projects (most of them solar) that seek interconnection with its power grid to slow the influx.

What Caused the Most Recent PJM Capacity Auction Delay?

On December 22, 2021, the Federal Energy Regulatory Commission (FERC) ordered PJM to change its reserve market rules. This move, yet again, delays the 2023/2024 capacity auction, previously set to occur on January 25, 2022.

On December 15, 2021, PJM released the initial findings of a multiphase, multiyear "living study" that captures the potential impacts of an evolving grid resource mix that includes more electricity from renewable energy resources such as wind and solar assets. PJM's paper, "Energy Transition in PJM: Frameworks for Analysis," identifies critical gaps and opportunities within the current market construct and offers insights into the future of market design, transmission planning, and system operations with additional renewable generating assets in the grid. The paper cautions that the study’s assumptions are continually refined based on internal and external stakeholder feedback. PJM’s five key areas of focus are summarized below.

EPA’s stricter wastewater rules among reasons for additional coal-fired power plant retirements across PJM

In July 2021, the Environmental Protection Agency (EPA) announced new initiatives to strengthen wastewater pollution regulations for power plants that use steam to generate electricity and use coal as their fuel source. These initiatives are expected to affect 75 coal-fired power plants nationwide. The new rules would require these power plants to reduce their level of toxic metals, such as mercury, arsenic, and selenium, from plant wastewater before discharge into streams and rivers. Noncomplying plants had an October deadline to show state regulators how they plan to comply with the EPA’s regulations by 2028.