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: 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 21% of U.S. GDP produced in PJM Square miles of territory 214,000 States served 13 + DC As of 7/2012 2
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 Capacity Market Issues 3
Pre-2005 Trends: Decreasing Prices and Increasing Retirements 4
Potential Consequences of Not Having RPM and Staying with Previous Capacity Construct 2008 Brattle Assessment of RPM 4,641 MW likely retirements absent RPM 24,264 MW of resources at risk for retirement absent RPM 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% IRM 50% at Risk Retire 11.76% 10.43% 9.55% 8.67% IRM 75% at Risk Retire 7.22% 6.00% 5.20% 4.39% IRM 100% at Risk Retire 2.69% 1.57% 0.85% 0.10% Based on forecast of reserve margins June 14, 2006 and adjusted for Brattle assessment of retirements and units at risk 5
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 6
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) 7
Capacity Resources Generation Demand Response (DR) Energy Efficiency 8
Realized Outcomes with RPM 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% RTO 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 9 9
$/MW-Day RPM Base Residual Auction Resource Clearing Prices (By Zone) 300 250 200 150 100 $237.33 $197.67 $210.11 $188.54 $191.32 $148.80 $111.92 $102.04 $174.29 $139.73 $110.00 $110.00 $133.37 $245.00 $226.15 RTO EMAAC SWMAAC MAAC $167.46 $136.50 $125.99 $136.00 50 - $40.80 $27.73 $16.46 2007/2008 2008/2009 2009/2010 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 2015/2016 10
MWs 12,000 Cumulative New Dependable Capacity 2007-2016 10,000 8,000 6,000 4,000 2,000 0 Combined Cycle Combustion Turbine Steam Nuclear Wind Hydro Diesel Solar Fuel Cell 11
25,000 20,000 New Capacity Market (RPM) Encouraging Demand Resources Energy Efficiency RPM and FRR DR Interruptible Load for Reliability Active Load Management Committed IL, DR & EE 15,000 10,000 5,000 0 2005/2006 2007/2008 2009/2010 2011/2012 2013/2014 2015/2016 12
PJM Demand Side Response Estimated Revenue $600,000,000 $500,000,000 $400,000,000 Economic Energy Incentives Economic Energy Emergency Energy Ancillary Services Capacity* $300,000,000 $200,000,000 $100,000,000 $0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 as of 04/09/2013 *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. 13
Meeting the Challenge of Retirements Over 20 GW of Actual & Announced Deactivations 2010-2016 14
Delivered Price $/mmbtu Share of Total Energy $10.00 $9.00 $8.00 Prices and Energy Shares of Coal and Natural Gas in PJM 100% 90% 80% $7.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 70% 60% 50% 40% 30% 20% 10% $0.00 2007 2008 2009 2010 2011 2012 2013 YTD 0% Central App Spot Coal price Delivered Coal Price Delivered Gas Price Henry Hub Gas Price Coal Energy Share Gas Energy Share 15
PJM at the Center of New Shale Production and Storage 16
PJM Installed Capacity Cleared in RPM 70,000 60,000 Coal Configuration of Capacity is Changing: Shale Gas and Environmental Rules 50,000 Gas 40,000 30,000 20,000 10,000 Total Renewables Demand Response Wind/ Solar 0 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 Delivery Year 17
2013 PJM Wholesale Cost PJM Wholesale Cost YTD March 2013 ($/MWh) Reliability (Capacity), 4.88 Regulation, 0.27 Transmission, 4.60 Operating Reserve, 1.22 PJM Cost, 0.34 Reactive, 0.34 Trans. Owners Control, 0.08 Synchronized Reserve, 0.04 Energy, 37.42 Black Start, 0.14 TOTAL: $49.33/MWh * Values are PJM averages and do not reflect potential locational cost differences. 18
2012 PJM Wholesale Cost PJM Wholesale Cost Full-Year 2012 ($/MWh) Reliability (Capacity), 6.02 Regulation, 0.25 Transmission, 4.71 Operating Reserve, 0.75 PJM Cost, 0.32 Reactive, 0.35 Trans. Owners Control, 0.08 Energy, 35.23 Black Start, 0.03 Synchronized Reserve, 0.04 TOTAL: $47.77/MWh * Values are PJM averages and do not reflect potential locational cost differences. 19
2011 PJM Wholesale Cost PJM Wholesale Cost Full-Year 2011 ($/MWh) Regulation, 0.32 Reliability 9.49 (Capacity), Operating 0.74 Reserve, Transmission, 4.34 PJM Cost, 0.28 Reactive, 0.35 Trans. Owners Control, 0.09 Synchronized Reserve, 0.09 Energy, 45.94 Black Start, 0.02 TOTAL: $61.65/MWh * Values are PJM averages and do not reflect potential locational cost differences. 20