Bernstein reviews impact of PJM 2017-2018 transition auction

The PJM Interconnection recently announced the results of its 2017/2018 Capacity Performance Transition Auction, through which it sought to procure 70% of its 2017/2018 reliability requirement in the form of capacity performance resources, the Bernstein firm noted Sept. 10.

This latest auction successfully procured the target quantity of 112,195 MW of Capacity Performance Resources at an auction clearing price of $152/MW-day – up from the clearing price of $120/MW-day set in the 2017/2018 Base Residual Auction or BRA, Bernstein said in a review led by Senior Analyst Hugh Wynne.

The clearing price of $152/MW-day was well below the auction cap of $211/MW-day, which was set equal to 60% of the Net cost of new entry (CONE) used in the 2017/2018 BRA.

Of the 133,768 MW of Capacity Performance Resources offered into the 2017/2018 CP Transition Auction, just under 84% cleared, comparable to the roughly 80% that cleared the 2016/17 transition auction the previous week.

The auction results suggest that gas fired and other generation resources were the marginal, price setting suppliers of capacity in the 2017/2018 CP Transition Auction.

“As the amount of gas fired capacity cleared as Capacity Performance Resources in the 2017/2018 CP Transition auction is greater than the existing fleet of dual fuel, gas fired capacity in the RTO, we believe the cost of securing firm access to pipeline capacity for winter time fuel deliveries may account for the bulk of the capacity price increase,” Bernstein said in the analysis.

Generators that seemingly benefit the most from the increase in capacity revenues include NRG Energy (NYSE:NRG), Dynegy (NYSE:DYN); and Exelon (NYSE:EXC) among others, Bernstein said in its analysis.

A.B. Bernstein, which is an affiliate of Bernstein Research and Sanford C. Bernstein, is a New York-based investment research and financial management firm.

About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.