Recent rule changes by federal regulators to the PJM Interconnection’s capacity market will not be as dire for renewable energy resources as some have feared, the grid operator’s market monitor said, but others see significant longer-term impacts.
Based on a detailed analysis of how the minimum offer price rule, or MOPR, would impact capacity prices, the independent market monitor found almost zero impact on renewable energy resource clearing prices in the next auction, said Joseph Bowring, president of Monitoring Analytics, during a March 12 conference call with reporters. The rule will set administratively determined price floors for most state-supported energy resources offering capacity into PJM.
“So contrary to some of the hyperbolic, quasi-hysterical assertions about high prices, there is absolutely no evidence to support the notion put forward that MOPR would result in higher prices,” Bowring said.
Tom Rutigliano, a senior advocate for the Natural Resources Defense Council’s Sustainable FERC Project, said in January that the MOPR as contemplated would be “devastating to state clean energy policies.” Part of the disagreement in views relates to timing and how the floor prices would impact renewable resource auction competitiveness over the longer term.
The Federal Energy Regulatory Commission issued an order in December 2019 (FERC dockets EL16-49, EL18-178) updating PJM’s capacity market rules to address the potential price-suppressing effects of state subsidy programs. The order expands the application of the MOPR to all new and some existing resources receiving state subsidies.
Looking ahead, Bowring said the cost of new entry for renewable resources “is low enough to compete right now and certainly in three or four years when it becomes more relevant under MOPR it will be even lower.”
The source of those projections are renewable project developers themselves, he added.
“The people who are actually designing, selling and developing the renewables are not the ones yelling about MOPR … those involved in the business keep telling us and saying publicly that they think they are competitive now and will be more competitive in the future,” Bowring said.
Renewables should have little problem clearing in this next auction because FERC granted exemptions for renewable projects that are far along the interconnection queue process, according to one industry source. PJM said March 12 that it will request flexibility from FERC to delay the start of the 2022-2023 auction to no later than mid-March and the completion to no later than March 31, 2021.
Not all renewable assets well-positioned
Despite Monitoring Analytics’ assurances, the firm’s data shows that offshore wind projects could have trouble competing economically in PJM’s markets under the recently issued MOPR. A graphic from the market monitor showed that a representative offshore wind plant connected to New Jersey would not have covered its levelized total costs from 2014 to 2019 when including capacity, energy and renewable energy credit revenue.
This has caused some states to consider removing their capacity from the PJM market, a complex process. “States must consider the implications of PJM’s auction schedule as they decide how to proceed,” the industry source said.
PJM states including New Jersey and Virginia are pursuing offshore wind development, some of which will be supported with offshore wind renewable energy credits. Offshore wind is a nascent U.S. industry and has higher upfront development costs than onshore wind or solar projects.
PJM has estimated that the net cost of new entry for an offshore wind project is about $3,146/MW-day, far exceeding $175/MW-day for a solar photovoltaic project with tracking technology and an overall average clearing price for all resources of $157/MW per day in PJM’s the last capacity auction.
“Going from $3,146/MW-day in the case of offshore wind to $157/MW-day is not immaterial,” the industry source said. With PJM potentially initiating auction activity for the 2024/2025 delivery year in the fall of 2021, “it is not reasonable to expect that renewable project costs can come down so significantly that fast,” the source added.
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