Electricity generators on the biggest U.S. grid will be paid 32% less next year for being on standby to keep power flowing on the system stretching from New Jersey to Illinois.
Suppliers to the grid, which serves more than 65 million people, will get $34.13 a megawatt-day to provide backup capacity for the 12 months starting June 2023, according to the results of an auction released Tuesday by PJM Interconnection LLC, which operates the system.
PJM’s annual auction plays a central role in shaping the U.S. energy landscape. It provides a steady source of revenue and a potential lifeline for aging power plants that manage to win contracts, shaping the electricity mix in some of the most populous U.S. regions.
The biggest losers in this year’s auction were older power plants, primarily coal, which dropped by about 7.2 gigawatts compared to last year. Nuclear reactors fared best, adding 5.3 gigawatts. Solar added about 350 megawatts.
“We are experiencing the continuing transition to lower carbon emitting resources,” Stu Bresler, senior vice president of market services of PJM said in a press briefing Tuesday. “We see that trend continuing with this auction.”
PJM lined up nearly 144.9 gigawatts of capacity in this year’s auction, creating a reserve margin of 21.6%. Most analysts polled by Bloomberg said they expected prices to decline as slowing demand for electricity, a glut of older power plants and state subsidies for nuclear reactors in Illinois squeeze bids.
Power-demand growth for has been sluggish for years in PJM, thanks to lackluster industrial activity, a rise in rooftop solar panels and more efficient household appliances. All-time usage on the grid peaked in the summer of 2006 at 165.6 gigawatts. This year, it’s forecast to top out at about 149 gigawatts.
Supply, meanwhile, has swelled as developers have built natural gas-fired plants over the past decade to take advance of low-cost fuel from shale basins in Pennsylvania, West Virginia and Ohio. Plus, lawmakers in Illinois granted state subsidies last year to two nuclear plants as part of their efforts to fight climate change. Those reactors were apt to retire without the state aid.
PJM typically holds capacity auctions three years in advance of when the supply is needed, giving companies time to make investment decision and build new plants. This one has been delayed by more than two years amid an intense debate over reforming rules for how subsidized plants can bid into the market.
