The price of power that the U.S.’s largest grid operator pays utility companies for power rose across the board at an auction Friday, with prices more than doubling in New Jersey and Philadelphia, foreshadowing a potential increase in electricity bills and a rise in the share prices of some power companies.
The price increase stems from a series of reforms that grid operator PJM Interconnection LLC enacted after widespread failures led to brownouts during the frigid winter of 2014.
The price rise could add about $2 to $3 to the average consumers’ monthly bill across its territory, stretching from Newark, N.J., to Chicago and supplying 61 million people.
PJM estimates that an extra $3.4 billion will go to the system’s power companies in exchange for a guarantee that starting in 2018 they will run when demand is highest, a safeguard put in place after the 2014 failures.
Several investors and analysts say the auction results are likely to boost share prices of power companies with plants that supply the PJM market. The companies most likely to benefit include NRG Energy Inc., Exelon Corp., Calpine Corp., Dynegy Inc. and Public Service Enterprise Group.
“Everything investors generally hoped for happened."
The so-called “capacity price” was set at $164.77 a day for every megawatt produced by power plants across most of PJM’s territory from July 2018 to May 2019, according to results of the annual auction PJM released after markets closed Friday. That compares with $120 a megawatt-day established last year for nearly all of the territory, regions that include some Washington, D.C., suburbs, Pittsburgh and Chicago.
Prices in the Chicago region and parts of the East Coast will go up even more, with a strip from New Jersey to Virginia seeing prices hit $225.42 a megawatt-day, up 88% for most of that area.
The award largely matched analysts’ expectations, which had generally ranged from $150 to $200 a megawatt-day. Moody’s Corp. had called this “arguably the most important” PJM auction in their eight-year history both for PJM’s plan to improve reliability and as an earnings driver to help companies.Much, much more at the link.
Some story lines that I don't have time for now, but story lines that have been discussed before and will be discussed again:
- before I started blogging, I had never heard of PJM; I believe it was an RBN Energy post that introduced me to PJM
- the "size" and geographic footprint of PJM
- the cost of intermittent energy; for the past decade, politicians have been pushing wind and solar energy; meanwhile infrastructure for conventional power was ignored
- the nuclear energy story (see below)
- the switch from coal to natural gas
- the Road to New England: faux environmentalists doing what they can to delay needed pipelines to New England
- it was global cooling -- the Polar Vortex -- responsible for this huge increase in the cost of electricity, not global warming
- why utilities are protected; another issue I did not know about until I started blogging
- "capacity factor" is back in the news
With regard to the nuclear energy story line, here is a link to Crain's, "Exelon's case for how poorly its nukes are doing" --
For the first time, Exelon is pulling back the curtain on the deteriorating economics at its Illinois nuclear plants.
In a bid to build more support for subsidies financed by rate payers, the state's largest power generator provided Crain's with its most detailed look at the financials of the company's six Illinois nuclear stations. Altogether, they are profitable but may not be in the near future.
The Chicago-based company learned on Aug. 21 that it will receive substantially higher revenue beginning in 2018 from increased consumer payments to power-plant owners for their promise to produce during high-demand periods. Even so, wholesale power prices in northern Illinois have fallen to such a point that the entire Illinois fleet could be unprofitable during the next few years.
Wall Street analysts want the company to shutter money-losing plants in Illinois if it can't get financial relief from the state.