Power plants would be paid 15 percent less next year to provide backup electricity on the largest US grid, a big blow to aging coal units that have already struggled against cheap renewable energy.
Generators that provide electricity to the grid stretching from New Jersey to Illinois would get US$28.92 a megawatt-day from utilities to provide capacity over a 12-month period starting in the middle of next year, according to the results of an auction disclosed on Monday.
That is down from US$34.13 in the previous auction, released in June last year.
Photo: AP
The auction provides a crucial source of revenue for plants that together serve 65 million people, shaping the electricity mix for a vast swathe of the US.
One of the most notable changes from past auctions was the sharp decrease in coal plants vying for contracts coupled with a big increase of solar. The change reflects the accelerating shift to clean energy, driven in part by tighter environmental rules that affect the dirtiest fossil fuel, as well as federal and state incentives to support clean power.
“The economic consequences and the policy decisions being made are affecting coal more than other resources,” Stu Bresler, senior vice president of market services at grid operator PJM Interconnection LLC, said in a briefing.
The amount of power that bid into the auction fell by about 2 gigawatts from the prior auction, mostly coal units.
Altogether, about 6 gigawatts of capacity shuttered last year and about 6 additional gigawatts are expected to close this year.
The majority of the retirements across last year and this year are expected to be coal units.
The latest auction continued a three-year trend of decreasing amounts of megawatts offered.
If that continues, Bresler said it could raise concerns about reliability.
For now, the grid has enough capacity to ensure the lights stay on, officials said.
“They are concerned about retirements — and the new stuff coming is renewables,” said Paul Patterson, an analyst at Glenrock Associates LLC. “It seems like they are planning significant market rule changes to address what they feel are problems with the market.”
The auction results were delayed by two months after some fossil-fuel and renewable plants that had been expected to be online by June next year did not bid into the auction. That risked a surge in power prices in part of the grid’s territory.
The grid operator called these costs “unjust and unreasonable,” and it sought permission from the US Federal Energy Regulatory Commission to revise the rules. The agency approved the change last week, allowing PJM to release the auction results.
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