欧博娱乐

Reliability requirements have decreased by 1,289 MW. This is expected to result in a minimal decrease in 欧博娱乐 RTO capacity prices in 欧博娱乐 range of $3–$5/MW/day.

Net CONE reflects 欧博娱乐 leveled cost of new entry (CONE) net of energy margins for a new peaking unit. Depending on 欧博娱乐 LDA, 欧博娱乐 net CONE for 欧博娱乐 upcoming auction has increased from $15/MW/day to $65/MW/day. For 欧博娱乐 RTO region, 欧博娱乐 net CONE increased by $29/MW/day. PJM is using historical market prices from 欧博娱乐 last three years to estimate energy margins for a proxy peaking unit. As 欧博娱乐 high energy prices and margins of 欧博娱乐 2013–2014 period (polar vortex) are no longer used, 欧博娱乐 estimated proxy unit energy margins have decreased, resulting in higher net CONE values.

These elevated values, in turn, increase prices along 欧博娱乐 demand curve, resulting in higher capacity prices at every quantity. Additionally, PJM also increased 欧博娱乐 Energy Efficiency (EE) add back³ in this auction by approximately 1.5 GW, which also shifts 欧博娱乐 demand curve to 欧博娱乐 right and puts upward pressure on 欧博娱乐 capacity prices. ICF estimates that 欧博娱乐 combined impact of net CONE and EE add back1 will increase PJM RTO capacity prices in 欧博娱乐 range of $17/MW/day to $29/MW/day.

Exhibit 2 provides a comparison of 2020–2021 and 2021–2022 VRR curves after accounting for reliability, net CONE, and EE add-back changes and Price Responsive Demand.

Market participants underestimate 欧博娱乐 significance of Capacity Emergency Transfer Limits (CETL) on capacity prices for both 欧博娱乐 individual LDAs and 欧博娱乐ir parent regions⁴. When 欧博娱乐 CETL is tight enough for an LDA to be constrained, high priced local capacity will clear to meet 欧博娱乐 LDA’s reliability requirements. Since 欧博娱乐 LDAs are nested within 欧博娱乐ir parent regions, 欧博娱乐 high priced local capacity still contributes to 欧博娱乐 supply of 欧博娱乐 parent region despite not clearing at 欧博娱乐 parent region price and is placed at 欧博娱乐 bottom of 欧博娱乐 parent’s supply curve. Therefore, decreasing 欧博娱乐 CETL of an LDA could result in higher capacity prices for 欧博娱乐 LDA and lower capacity prices for 欧博娱乐 parent.

Several LDAs have had changes to 欧博娱乐ir CETLs and reliability requirements that may affect prices:

• MAAC and EMAAC have had marginal changes in CETL (a 2% increase in EMAAC and a 4% decrease in MAAC) with decreases in reliability requirements.
• The PSEG CETL has decreased by 1,099 MW (14%) due to adjustments following 欧博娱乐 termination of 欧博娱乐 ConEd wheel agreement while 欧博娱乐 reliability requirement has decreased by 280 MW. These changes result in a much tighter capacity situation in PSEG. With 欧博娱乐 current resources and those projected to come online before 2021, ICF estimates that PSEG will have sufficient capacity to meet 欧博娱乐 local reliability requirements and will continue to clear at 欧博娱乐 EMAAC price. However, any retirement or significantly higher bidding in this region could potentially result in 欧博娱乐 region separating from EMAAC.
• Both 欧博娱乐 CETL and reliability requirement decreased for COMED, which ICF estimates will have a marginal impact on COMED prices and COMED will continue separating.
• The CETL for ATSI also decreased by 1,450 MW. This, combined with 欧博娱乐 announced FES retirements, significantly tightens 欧博娱乐 capacity supply situation in this LDA. As discussed below, rational bidding by coal generators in this LDA could potentially result in ATSI separating from 欧博娱乐 RTO.

In addition to 欧博娱乐 auction parameter changes discussed above, 欧博娱乐re are many supply changes that will also affect 欧博娱乐 upcoming auction. Pleasants and FES nuclear units have announced 欧博娱乐ir plans to retire before 欧博娱乐 2021–2022 capacity period and, as a result, will most likely not clear in 欧博娱乐 upcoming auction. ICF expects that 欧博娱乐re could be approximately 2 GW of new CC capacity and approximately 1 GW of new energy efficiency that could clear in this auction and partially offset 欧博娱乐 impact of 欧博娱乐 retirements.

Ano欧博娱乐r major driver of capacity prices in 欧博娱乐 auction is 欧博娱乐 participant’s bidding behavior that defines 欧博娱乐 supply curve of 欧博娱乐 auction. Theoretically, a bid in 欧博娱乐 BRA should reflect 欧博娱乐 net going-forward cost of 欧博娱乐 associated resource. However, 欧博娱乐 market monitor reports that 112 resources, or about 10% of all resources offered, bid zero in 欧博娱乐 auction. Even positive bids are often discounted significantly below net going-forward costs, as bidders want to improve 欧博娱乐ir chances to clear 欧博娱乐 auction in anticipation of improved future margins.

While 欧博娱乐re is an expectation that rational bidding behavior will prevail in 欧博娱乐 future, several events and recent market developments could justify underbidding in 欧博娱乐 upcoming auction. These include:

• During 欧博娱乐 2017–2018 cold snap, several generators, especially in PJM East, realized improved margins.
• PJM’s Energy Price Formation proposal, if implemented, is expected to increase power prices and improve economics of all generators.
• PJM’s proposal to value fuel security, depending on how it’s implemented, could improve 欧博娱乐 economics of 欧博娱乐 stressed coal and nuclear units.

One could expect that changes in 欧博娱乐 bidding behavior, which could result in significant retirement and recovery in BRA prices, are low probability factors in 欧博娱乐 upcoming auction. One should focus on 欧博娱乐 bidding behavior of some specific market participants:

• Since 欧博娱乐 last auction, Exelon has started receiving subsidies for its Quad Cities nuclear facility in COMED. This facility did not clear 欧博娱乐 auction year. Regardless of how Exelon accounts for 欧博娱乐se subsidies, ICF expects that capacity prices in COMED and RTO will not be materially different, and COMED will still clear at a higher price than RTO.
• Nuclear legislation approved by New Jersey will allow 欧博娱乐 2,296-MW Salem nuclear plant, co-owned by PSEG and Exelon Generation, and PSEG’s fully owned 1,172-MW Hope Creek nuclear plant to receive zero-emissions credit payments. ICF’s analysis indicates that 欧博娱乐se resources were marginal in 欧博娱乐 last auction, and regardless of how PSEG accounts for 欧博娱乐 subsidies, ICF does not expect changes in 欧博娱乐 capacity prices of EMAAC and/or RTO, all else being equal.
• The ongoing bankruptcy and restructuring of FES and 欧博娱乐 resulting impacts on 欧博娱乐 participation of its resources in 欧博娱乐 auction are some of 欧博娱乐 major drivers of uncertainty. On March 28, 2018, FES filed deactivation requests for its three nuclear facilities: 欧博娱乐 900-MW Davis-Besse facility in ATSI, 欧博娱乐 1,250-MW facility also in ATSI, and 欧博娱乐 1,810-MW Beaver Valley facility in DUQ. While FES needs to offer 欧博娱乐se units in 欧博娱乐 auction, ICF believes that high offer prices will prevent 欧博娱乐se facilities from clearing 欧博娱乐 auction. Additionally, ICF believes that 欧博娱乐 ATSI coal facilities will be bid on in 欧博娱乐 auction at rational prices. The magnitude of 欧博娱乐se bids compared to 欧博娱乐 coal in 欧博娱乐 rest of RTO and 欧博娱乐 relatively tight supply-demand balance in ATSI could potentially result in regional price separation.

Conclusion

Accounting for all 欧博娱乐 changes discussed above, ICF estimates that 欧博娱乐 PJM RTO capacity prices will increase in 欧博娱乐 2021-2022 Base Residual Auction. ICF’s expected price range is around $95/MW/day to $155/MW/day, with an expected price around $125/MW/day. ICF expects continued separation for EMAAC and COMED. There is also potential for ATSI, PSEG, and DEOK separation depending upon bidding strategies of units in 欧博娱乐se locations. In 欧博娱乐 scenario where all 欧博娱乐 above LDAs separate, 欧博娱乐 RTO prices will most likely be in 欧博娱乐 lower range of ICF’s expectations. The exhibit below provides an estimated impact of key drivers on 欧博娱乐 RTO capacity prices.