Bad weather highlights PJM's market competitiveness
PJM Interconnection's wholesale electric energy and capacity markets produced competitive results for the first six months of the year, according to the report released by independent market monitor Monitoring Analytics LLC.
PJM is the regional transmission organization whose service area includes Pennsylvania and 12 other states, plus the District of Columbia.
The analysis, “2014 State of the Market Report for PJM: January through June,” looked at market structure, participant behavior and market performance for each of the PJM markets. A combination of increased, weather-related demand and higher fuel costs led to a significant increase in energy prices compared to the first six months of 2013, said Joseph Browning, Monitoring Analytics’ independent market monitor.
“The extreme winter weather conditions in the first three months of 2014, and the resultant stress on the markets, revealed the fundamental strength of the PJM markets as well as areas that need improvement,” Browning said in a news release.
The load-weighted average cost of energy increased 84.2 percent in the first six months of 2014 compared to the first six months of 2013, from $37.96 per MWh to $69.92 per MWh.
Energy prices in PJM in the first six months of 2014 were set, on average, by units operating at, or close to, their short run marginal costs, although this was not always the case during the high demand hours in January. This is evidence of generally competitive behavior and resulted in a competitive market outcome.
The price of natural gas increased significantly, while the price of coal was relatively flat in the first six months of 2014 compared to the first six months of 2013, according to the release.
“If fuel costs in the first six months of the year had been the same as in the first six months of 2013, holding everything else constant, the load-weighted (average cost of energy) would have been lower, $57.71 per MWh instead of the observed $69.92 per MWh in the first six months of 2014,” the release states. “If fuel costs had not increased from the first six months of 2013, the increase in (load-weighted average cost of energy) would have been 52.0 percent rather than 84.2 percent.”