The state of the PJM Interconnection markets in the first three months of 2014 reflected extreme winter weather conditions, and the resultant stress on the markets revealed the fundamental strength of the markets as well as areas that need improvement, said PJM’s market monitor.
Monitoring Analytics LLC, which serves as the Market Monitoring Unit (also known as the Independent Market Monitor) for PJM, on May 15 submitted to the Federal Energy Regulatory Commission its 2014 Quarterly State of the Market Report for PJM: January through March.
The results of the energy market, the results of the capacity market and the results of the regulation market were competitive, the report noted. “The PJM market design must be robust to stress,” it added. “Markets that only work under normal conditions are not effective markets. Continued success requires markets that are flexible and adaptive. However, wholesale power markets are defined by complex rules. Markets do not automatically provide competitive and efficient outcomes. Despite the complex rules, these are markets and not administrative constructs, and have all the potential efficiency benefits of markets. There are still areas of market design that need further improvement in order to ensure that the PJM markets continue to adapt successfully to changing conditions.”
The overall energy market results support the conclusion that energy prices in PJM are set, generally, by marginal units operating at, or close to, their marginal costs, although this was not always the case during the high demand hours in January of this year. The performance of the PJM markets under scarcity conditions raised a number of concerns related to capacity market incentives, participant offer behavior in the energy market under tight market conditions, natural gas availability and pricing, demand response and interchange transactions.
In the area of supply, which includes physical generation and imports and virtual transactions, average offered real-time generation decreased by 273 MW, or 0.2%, from 177,820 MW in the first three months of 2013 to 177,547 MW in the first three months of 2014. In 2014, 271 MW of new capacity were added to PJM. This new generation was mostly offset by the deactivation of four units (208 MW) since Jan. 1, 2014. The decrease in offered supply in the first three months of 2014 was in part a result of a 1,866 MW reduction in net capacity between April 2013 and March 2014.
PJM average real-time generation in the first three months of 2014 increased by 8.5% from the first three months of 2013, from 92,776 MW to 100,655 MW. The PJM average real-time generation in the first three months of 2014 would have increased by 7.7% from the first three months of 2013, from 92,776 MW to 99,875 MW, if the EKPC Transmission Zone had not been included.
Coal-fired generation jumped in the first quarter of this year
During the first three months of 2014, coal units provided 48.6%, nuclear units 31.6% and gas units 14.7% of total generation. Compared to the first three months of 2013, generation from coal units increased 18.6%, generation from nuclear decreased 3.6%, and generation from gas units increased 5.8%.
During the first three months of 2014, PJM installed capacity decreased 201.3 MW or 0.1% from 183,095.2 MW on Jan. 1 to 182,893.9 MW on March 31. Installed capacity includes net capacity imports and exports and can vary on a daily basis.
Of the total installed capacity on March 31, 41.2% was coal; 29.2% was gas; 18.1% was nuclear; 6.2% was oil; 4.4% was hydroelectric; 0.5% was wind; 0.4% was solid waste; and 0.0% was solar.
As of March 31, 66,135 MW of capacity were in generation request queues for construction through 2024, compared to an average installed capacity of 198,894 MW as of March 31. Of the capacity in queues, 5,973 MW (9%) are uprates and the rest are new generators. Wind projects account for 17,218 MW of nameplate capacity or 26% of the capacity in the queues. Combined-cycle projects account for 39,985 MW of capacity or 60.5% of the capacity in the queues.
A big series of retirements/deactivations is in the works
In total, 25,902.2 MW are or are planned to be retired between 2011 and 2019, with all but 2,050.5 MW retired by the end of 2015. The AEP Zone accounts for 6,024 MW, or 23.26%, of all MW planned for retirement from 2014 through 2019.
A potentially significant change in the distribution of unit types within the PJM footprint is likely as a combined result of the location of generation resources in the queue and the location of units likely to retire. In both the Eastern MAAC and the Southwestern MAAC locational deliverability areas, the capacity mix is likely to shift to more natural gas-fired combined cycle and combustion turbine capacity. Elsewhere in the PJM footprint, continued reliance on steam (mainly coal) seems likely, despite retirements of coal units, the report noted.
The report has a long list, updated to March 31, of planned unit deactivations in the PJM region. The ones planned for this year are:
- BL England Unit 1, 113 MW, coal, deactivate on May 1;
- Deepwater Units 1 and 6, 158 MW, gas, May 31;
- Burlington Unit 9, 184 MW, kerosene, June 1;
- Portland Units 1-2, 401 MW, coal, June 1;
- Riverside Unit 6, 115 MW, gas, June 1;
- Chesapeake Units 1-4, 576 MW, coal, Dec. 31; and
- Yorktown Units 1-2, 323 MW, coal, Dec. 31.
The actual 208 MW of total deactivations in the first quarter of this year were: FirstEnergy, Mad River CTs A and B, diesel, 50 MW; Duke Energy, Beckjord Unit 4, coal, 150 MW; and Modern Mallard Energy, landfill gas, 8 MW.