Working? Capacity Market Prices for New Jersey (PS) Spike Above $200, Attracts Little New Entry; PJM Sees *Decrease* in Available Capacity

PJM's Reliability Pricing Model Base Residual Auction for the 2016/17 delivery year saw prices for the PS Locational Deliverability Area (PSE&G) spike above $200, yet the zone attracted little new entry. Prices for other constrained zones (MAAC, ATSI) remain in triple digits.

Specifically, clearing prices for "annual" resources in the 2016/17 BRA was as follows ($/MW-day):

Rest of RTO        $59.37
ATSI              $114.23
MAAC              $119.13
PS                $219.00

Depending on zone, prices for certain demand response products varied in some cases.

The Preliminary Zonal Net Load Price ($/MW-day) for 2016/17 is as follows:

Rest of RTO        $59.37
ATSI               $90.54
MAAC              $118.89
PS                $177.61

The capacity clearing price for the PS zone represents a 30% increase from the 2015/16 delivery year. The 2016/17 year represents the 10th year for which RPM has procured capacity, and not once in that time has the PS zone had a BRA clearing price below $100, and often, the price for the zone (or PS-North subzone) approaches or exceeds $200.

It's clear, for whatever reason, the market has not, and apparently will not, bring new capacity to PS in enough quantities to relieve the penal capacity prices. And yet, when the state attempts, in a competitive process, to bring new capacity online to mitigate this market failure, it's stymied by incumbent asset owners and the federal government.

PJM touched on the challenges facing PS in its BRA results report, noting that the PS zone, "is historically transmission constrained, and did not attract much of the new entry and uprates that are internal to PJM and could not fully benefit from the new entry in other parts of PJM and the increased imports due to the transfer limits into PSEG."

"Additionally, of the 2,710 MW of announced deactivations since the last BRA, the PSEG zone accounted for 1,408 MW or just over half of the total deactivations in all of PJM since the last BRA, and none of the withdrawn deactivations were located in the PSEG zone. PSEG also experienced a 165 MW decline in cleared Demand Resources that follows the 168 MW decrease in Demand Resources seen in the 2015/2016 BRA," PJM reported.

Also noteworthy is the sharp decline of demand response participation in the 2016/17 BRA.

"The total quantity of demand resources offered into the 2016/2017 BRA was 14,507.2 MW (UCAP), representing a decrease of 27.3% over the demand resources that offered into the 2015/2016 BRA," PJM reported.

Demand resource capacity decreased by about 5,300 MW.

In fact, this drop in demand response led to an aggregate reduction in available capacity for the 2016/17 BRA of 3,300 MW, which, along with retirements, more than offset "record" amounts of new generation offered for 2016/17.

"A total of 7,010.8 MW of incrementally new capacity in PJM was available for the 2016/2017 Base Residual Auction. This incrementally new capacity includes new generation capacity resources, capacity upgrades to existing generation capacity resources and new energy efficiency resources. The increase is more than offset by generation capacity deratings on existing generation capacity resources and a reduction in the quantity of offered demand resources to yield a net decrease of 3,291.9 MW of installed capacity," PJM said.