The latest PJM auction factors in extreme weather and reduced payouts to gas generators for the first time based on unplanned outages in winter storms. — Reuters
NEW YORK: Power prices on the biggest US power grid are about to hit a record-high amid a wave of plant retirements and surging demand, thanks in part to new data centres being built.
Generators that provide electricity to the 13-state grid that stretches from New Jersey to Illinois will get a record US$269.92 per megawatt-day from utilities to provide capacity over a 12-month period which started in June, results of an auction by grid operator PJM Interconnection LLC disclosed.That’s more than a nine-fold increase from US$28.92 in last year’s auction.
“The market has spoken and it is saying you are going to have to pay a lot more for reliable power,” Paul Patterson, a power market analyst for Glenrock Associates, said in an interview.
The results of the auction underscore the challenges of the energy transition: cheap solar and wind power are making older plants, including coal-fired generators, less competitive, but a sudden burst of electric demand to meet the needs of factories and data centres to enable artificial intelligence along with broader electrification risks straining grids.
“We do believe those higher prices will send a clear investment signal” to maintaining existing resources and building new ones, Stu Bresler, PJM’s executive vice-president of market services and strategy, said in a media briefing.
“The PJM auction provides a critical revenue source for power plants in the region, shaping the electricity mix for a vast swath of the United States.”
Those payments aim to ensure that generators are ready to serve the grid whenever PJM needs them.
Electricity users – households and businesses alike – ultimately end up bearing the costs of such protections.
The auction results drove up share prices of power producers in the region, with both Vistra Corp and Constellation Energy Corp soaring more than 11% in after-market trading.
These so-called capacity prices are one component of wholesale electricity costs; the biggest piece being the actual cost for for producing megawatts.
These charges are passed on to consumers’ utility bills, but how quickly that happens depends on each utility’s policies.
The latest PJM auction factors in extreme weather and reduced payouts to gas generators for the first time based on unplanned outages in winter storms.
The amount of megawatts from some of the most efficient gas generators was reduced by about 20%, though some likely saw greater reductions depending on actual performance.
This helped lift prices across the board.
Prices were driven up by a 6.6 gigawatts of generation shutting down or signalling the intention to retire.
Prices hit the price cap in two zones because of insufficient resources in those regions and grid bottlenecks.
Exelon Corp’s Baltimore Gas & Electric utility rose to US$466.35 per megawatt-day and US$444.26 for Dominion Energy Inc’s Virginia utility, which is the data centre capital of the nation.
“Capacity prices that rise this fast are a sign that the supply/demand balance is out of whack,” Lorig Charkoudian, a Maryland lawmaker who has been warning PJM of a coming supply crunch in Baltimore for years, said in an email. — Bloomberg
