CPV RETAIL BLOG: OCTOBER 2023
PJM Regulatory Review
Capacity Market Reform
PJM revisiting capacity market construct
Market design scrutiny to include:
- Appropriate capacity levels
- Qualifications
- Performance requirements
- Offer caps
FERC filing expected Q4 2023
Base Residual Auction (BRA)
Request for delay
FERC acceptance of PJM request issued on June 9th
- 2025/2026 BRA delay until June 2024
- Subsequent auctions held every 6 months thereafter
Additional Agenda Items
- PJM Board called for changes to Capacity Market Critical Issues Fast Path Process to be filed by October 13th. Key issues to be addressed include risk modeling, accreditation, penalty calculation, risk in supply offers and FRR.
- Stu Bresler, PJM Senior Vice-President of Market Services recently testified in front of the House Subcommittee on Energy, Climate and Grid Security where the focus was on high demand growth, increasing retirements and slower than anticipated new builds.
- Pennsylvania’s RGGI Working Group recently published its final report which acknowledges the need to balance carbon reductions with reliability and affordability although the report was noticeably missing substantive recommendations.
- The Market Monitor’s 2022 State of the Market Report was recently commented on by PJM whereby it agreed with some of the recommendations and rejected others. Topics included in the review included Market Power Mitigation in the Day-Ahead Energy Market, Gas/Electric Coordination, Treatment and Modeling of Generator Soak Time and Availability Reporting.
Market Drivers
Energy Market Update
- Storage is still on track to end the injection season (normally 11/01 each year) at around 3.8 TCF.
- A bit of late-Summer this week has pushed gas-fired power demand above 40 BCF/D.
- Cash prices continue to remain weak especially for weekend packages where sub $1.00/MMBTU prices have been common.
- This week has historically experienced the peak in maintenance outages in PJM which coupled with unseasonable heat has helped keep day-ahead power prices elevated.
- The normally seen pre-winter “buy” programs that have been commonplace historically have yet to materialize this year as both the northeast basis market and the NYMEX pricing remain subdued without too much volatility.
- Another mild winter will put significant downward pressure on prices for the summer of 2024 (April/2024-October/2024) NYMEX strip which will of course impact power prices out the curve.
- Oil prices continue to rally as on-going production cuts from Saudi Arabia and Russia has been met with strong demand from in India, China and the United States. Cushing inventories are of particular concern as levels there are approaching the bottom of the tanks where it becomes problematic whether physical deliveries could be made should they be called on.
- More difficulties continue to impact proposed offshore wind locations as costs have dramatically increased and are proving uneconomic under the initial power-purchase-agreement pricing terms.
- The gas drilling rig count continues to fall, albeit at a much slower rate, although overall domestic gas production remains strong averaging around 102 BCF/D heading into the winter.
- The winter season weather forecasts for PJM’s footprint are wildly diverse given the onset of what is being called a brutally strong El Nino Winter which comes with both warm and cold analog years.
Potpourri Comments
The upcoming winter season will dictate forward pricing dynamics as a confluence of factors are coming together in the 2024/2025 time-frame. With storage inventories and production running at all time highs and NYMEX prices trading relatively flat out through 2030 (calendar strips near $4.00/MMBTU) the weather will hugely influence the next big move. A repeat of last winter’s weather pattern will almost certainly weigh heavily on the Summer/2024 which could easily fall from its current level of $3.21/MMBTU by $1.00/MMBTU. However, a “normal” winter could be the springboard to higher prices given the likely reduction in inventories into the next wave of LNG Export Terminals due to start commercializing in Q4/2024. Given this backdrop of possible influences it is a good idea to work with the CPV Retail Team to develop a plan that provides both short and long-term options with sufficient pricing flexibility while managing risk. We are always available to discuss options!