The real-time load-weighted average PJM Interconnection power price in the first six months of 2022 reached $67.77/Mwh, up 121.3% from $30.62/MWh in H1 2021, driven mostly by higher fuel and emission costs, PJM's independent market monitor said Aug. 11.
"Our analysis concludes that the results of the PJM Energy Market were competitive in the first six months of 2022," Joe Bowring, president of Monitoring Analytics, PJM's independent market monitor, said in a statement accompanying the release of the second-quarter 2022 State of the Market Report.
The power price level is the third highest real-time load-weighted average locational marginal price for the first half of a year, while the price increase of $37.15/MWh and the percentage price increase of 121.3% are the largest increases in load-weighted average prices for the first half of a year since the creation of PJM markets in 1999, according to the report.
Of the $37.15/MWh increase, 46.9% was a direct result of higher fuel and emission costs, as both coal and natural gas prices were higher in H1 2022 compared with 2021, with coal and gas prices in the eastern part of PJM doubling, the IMM said.
The real-time hourly average load was 87,616 MWh in H1 2022, up 1.9% from 85,958 MWh in H1 2021, the report said.
The total wholesale power price was $95.93/MWh in H1 2022, up 69.7% from $56.52/MWh in H1 2021, and power generation from coal-fired units decreased 6.4% while generation from gas-fired units increased 5.2% from H1 2021, according to the IMM.
Market design challenges
The PJM markets are not perfect and significant changes to the core market design continue, including some that improve markets and some that do not, the report said.
"Significant issues" remain with the core market design and it is not guaranteed that the market design will successfully adapt to changing realities, including the role of renewable and intermittent resources, the role of distributed resources, and the role of states in subsidizing resources, the IMM said.
PJM market interventions have "substantial effects" on energy market outcomes, the report said, adding that transmission line ratings, transmission penalty factors, load forecast bias, hydro resource schedules, and unit ramp rate adjustments "change the dispatch of the system, affect prices, and can create significant price increases through transmission line limit violations or restrictions on the resources available to resolve constraints."
"PJM interventions to reduce line ratings unnecessarily trigger transmission constraint penalty factors and significantly increase power prices," the market monitor said.
In the first half of the year, 6.1% of the total load-weighted power price was the result of the transmission constraint violation penalty factors and, in H1, there were 10,731 such intervals in the real-time market, the report found.
PJM reduced transmission line ratings in 80% of those cases by an average of 5.6% and "PJM should limit its interventions in the market and provide greater transparency about the reasons and impacts, if any such interventions continue, in order to enhance market efficiency," the IMM said.
The market monitor also expressed concerns with certain capacity market design changes, including aspects of the Effective Load Carrying Capability approach to valuing capacity that PJM recently adopted.
ELCC values are used in capacity auctions to convert the nameplate capacity of intermittent and storage resources into megawatts of capacity equivalent to resources that can produce for any of the 8,760 hours in a year, according to the report.
"In order for the capacity market to provide competitive price signals, particularly with more renewable and intermittent and storage resources, the ELCC values must be accurate," the market monitor said.
Fixing PJM's ELCC approach is a "manageable task" if there is a shared goal of letting markets reflect the actual, marginal contribution of all types of capacity—including thermal resources—to reliability "without assumptions that arbitrarily favor some resource types," the report said.
PJM's "flawed ELCC approach, based on static average rather than dynamic, market defined marginal values and basing the results on incorrect assumptions about the dispatch of some resource types, will create new issues for the PJM capacity markets unless addressed in the near future," the market monitor said.
The IMM recommended that intermittent resources, including storage, not be permitted to offer capacity megawatts based on energy delivery that exceeds their defined deliverability rights, called Capacity Interconnection Rights.