PJM, IMM Estimate Capacity Performance Transition Costs To Be Up To $4 Billion Annually

Incremental capacity costs to load serving entities from a transition to PJM's proposed capacity performance product in the three years for which a base residual auction has already been held are estimated to be as high as $4 billion annually, PJM and the Independent Market Monitor said in a joint report.

PJM and the IMM claimed that net costs would be, at most, $2 billion annually, due to lower energy market prices and reduced uplift associated with implementing the capacity performance mechanism.

PJM and the IMM estimated the incremental capacity costs, and energy/uplift offsets, as follows:

Year      Incremental Capacity    Energy Market 
              Cost Range             Reduction
2015/16    $200-$600 Million           ---
2016/17    $2.5-$3.6 Billion      $2.2 Billion
2017/18    $3.1-$4.2 Billion      $2.2 Billion

For 2018/19, where the capacity performance product is proposed to be included in the BRA, "the estimated incremental capacity cost of the Capacity Performance proposal in this year is between $1.9 billion and $ 5.0 billion."

"The offsetting energy market benefits are conservatively estimated to be approximately $3.0 billion as resource performance, availability and flexibility continue to improve. Therefore the net cost of the Capacity Performance proposal in this year is estimated as between -$1.1 billion and $2.0 billion," PJM and the IMM said.

Link to Report