pjm’s experience with the rpm capacity market/media/files/msb/centers/... · 2013-04-23 ·...

PJM©2012 www.pjm.com

PJM’s Experience with the

RPM Capacity Market

2013 Austin Electricity Conference

Panel 1: Are Capacity Market Necessary to Ensure

Adequate Generating Reserve

Paul M. Sotkiewicz, Ph.D.

Chief Economist

PJM Interconnection

PJM©2012 2 www.pjm.com

PJM: Who We Are

KEY STATISTICS

Member companies 800+

Millions of people served 60

Peak load in megawatts 163,848

MWs of generating capacity 185,600

Miles of transmission lines 59,750

GWh of annual energy 832,331

Generation sources 1,365

Square miles of territory 214,000

States served 13 + DC 21% of U.S. GDP

produced in PJM As of 7/2012


Pre-2005 Capacity Market Issues

• One price did not fit all – Not aligned with locational value

– Not aligned with reliability

– Not aligned to value provided

• Value of capacity beyond IRM not

recognized

• Insufficient information to drive

investment and time to build

• Short-term market / limited forward

certainty


Pre-2005 Trends: Decreasing Prices

and Increasing Retirements


Potential Consequences of Not Having RPM

and Staying with Previous Capacity Construct

2007/2008 2008/2009 2009/2010 2010/2011

Target IRM 15.00% 15.00% 15.00% 15.50%

IRM known retirements only 20.84% 19.29% 18.26% 17.24%

IRM 25% at Risk Retire 16.30% 14.86% 13.90% 12.96%




2008 Brattle Assessment of RPM

•4,641 MW likely retirements absent RPM

•24,264 MW of resources at risk for retirement absent RPM

Based on forecast of reserve margins June 14, 2006 and adjusted for Brattle assessment of retirements and units at risk


Why the RPM Forward Capacity Market?

• Transparent locational price signals show the ‘cost’ of

reliability improvements ahead of the need

• Resource commitments are obtained to meet peak loads

3 years in the future providing sufficient lead time to build

new resources

• Downward sloping demand curve represents the value of

resources beyond the installed reserve margin and

provides stability of prices over time


Why the RPM Forward Capacity Market?

• Longer-term price signal and stable revenue stream for

generation resources incentivize investment in new and

existing resources

• Provides a known revenue stream 3 years forward that

reduces the value of the real option to wait for additional

information before making investment

• Competition is promoted between alternative resources

(Supply Side and Demand Side)


Capacity Resources

• Generation

• Demand Response (DR)

• Energy Efficiency


Realized Outcomes with RPM

9

RTO

Auction Results 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16

Resource Clearing Price $40.80 $111.92 $102.04 $174.29 $110.00 $16.46 $27.73 $125.99 $136.00

Target Reserve Margin 15.0% 15.0% 15.0% 15.5% 15.5% 15.4% 15.4% 15.4% 15.4%

Cleared Reserve Margin 19.2% 17.5% 17.8% 16.5% 18.1% 20.9% 20.2% 19.6% 20.2%

Change in Capacity Availability Installed Capacity MW

New Generation 15,136.3 Generation Upgrades (not including reactivations) 5,696.8 Generation Reactivation 538.7 Forward Demand and Energy Efficiency Resources 20,589.2 Cleared ICAP from Withdrawn or Canceled Retirements 4,173.5 Net increase in Capacity Imports 6,046.9 Total Impact on Capacity Availability in 2015/2016 Delivery Year 52,181.4


RPM Base Residual Auction

Resource Clearing Prices (By Zone)

$40.80

$111.92

$102.04

$174.29

$110.00

$16.46 $27.73

$125.99 $136.00

$197.67

$148.80

$191.32

$174.29

$110.00

$139.73

$245.00

$136.50 $167.46

$188.54

$210.11

$237.33

$174.29

$110.00

$133.37

$226.15

$136.50 $167.46

-

50

100

150

200

250

300

2007/2008 2008/2009 2009/2010 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 2015/2016

$/M

W-D

ay

RTO

EMAAC

SWMAAC

MAAC


Cumulative New Dependable Capacity

2007-2016

0

2,000

4,000

6,000

8,000

10,000

12,000

Combined Cycle

Combustion Turbine

Steam Nuclear Wind Hydro Diesel Solar Fuel Cell

MW

s


New Capacity

Market (RPM)

Encouraging Demand Resources

0

5,000

10,000

15,000

20,000

25,000

2005/2006 2007/2008 2009/2010 2011/2012 2013/2014 2015/2016

Energy Efficiency

RPM and FRR DR

Interruptible Load for Reliability

Active Load Management

Committed IL, DR & EE


PJM Demand Side Response Estimated Revenue

*Capacity revenue prior RPM implementation on 6/1/07 estimated based on average daily

ALM capacity credits and weighted average daily PJM capacity market clearing price.

$0

$100,000,000

$200,000,000

$300,000,000

$400,000,000

$500,000,000

$600,000,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 as of

04/09/2013

Economic Energy IncentivesEconomic EnergyEmergency EnergyAncillary ServicesCapacity*


Meeting the Challenge of Retirements

Over 20 GW of Actual & Announced

Deactivations 2010-2016

PJM©2012 15 www.pjm.com www.pjm.com

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

$9.00

$10.00

2007 2008 2009 2010 2011 2012 2013 YTD

Sh

are

of

Tota

l En

erg

y

Del

iver

ed P

rice

$/m

mB

tu

Prices and Energy Shares of Coal and Natural Gas in PJM

Central App Spot Coal price Delivered Coal Price Delivered Gas Price

Henry Hub Gas Price Coal Energy Share Gas Energy Share


Gas

Coal

Demand Response

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 Delivery Year

Total Renewables Wind/ Solar

PJM Installed Capacity

Cleared in RPM

Configuration of Capacity is Changing:

Shale Gas and Environmental Rules


2013 PJM Wholesale Cost

Energy, 37.42

Reliability(Capacity), 4.88

Transmission,4.60

Regulation, 0.27

Operating Reserve,1.22

PJM Cost, 0.34

Reactive, 0.34

Trans. OwnersControl , 0.08

SynchronizedReserve, 0.04

Black Start, 0.14

PJM Wholesale CostYTD March 2013

($/MWh)

* Values are PJM averages and do not reflect potential locational cost differences.

TOTAL: $49.33/MWh



Energy, 35.23

Reliability(Capacity), 6.02

Transmission, 4.71

Regulation, 0.25


PJM Cost, 0.32

Reactive, 0.35



Black Start, 0.03

PJM Wholesale CostFull-Year 2012

($/MWh)


TOTAL: $47.77/MWh



Energy, 45.94

Reliability (Capacity),9.49

Transmission,4.34

Regulation, 0.32


PJM Cost, 0.28

Reactive, 0.35



Black Start, 0.02

PJM Wholesale CostFull-Year 2011

($/MWh)


TOTAL: $61.65/MWh

pjm’s experience with the rpm capacity market/media/files/msb/centers/... · 2013-04-23 ·...

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