Authors: Joshua R. Castigliego, Liz Stanton, PhD, Sagal Alisalad, Tanya Stasio, Eliandro Tavares
October 2021 (Updated November 2021)
Researcher Joshua Castigliego, Senior Economist Liz Stanton, PhD, Assistant Researcher Sagal Alisalad, Researcher Tanya Stasio, and Assistant Researcher Eliandro Tavares prepared a report reviewing the economics of power plants in the PJM region, focusing on the "capacity payments" given to owners of generating units that promise to be available if needed to generate power at times of peak customer demand. AEC finds that PJM has consistently overestimated its peak demand and as a result spent too much money on capacity payments, and generating units—including many in or near Environmental Justice (EJ) communities—are kept online despite being uneconomic and unnecessary to provide reliable electric service.
AEC adjusted PJM’s forecasts and market design to better represent customer demand and other market conditions, and estimated the prices that individual generating units bid into the 2021/22 capacity auction, which took place in 2018. The actual bids by power plant owners are not made public, so we model them based on available cost and revenue data. PJM’s overestimate of customer demand and costs of new generating units raises market clearing prices and capacity payments to power plant owners, resulting in what we call a “fat market” with payments made to unnecessary power plants and higher costs to customers. In place of PJM’s $140 per megawatt-day (MW-day) fat market clearing price, we estimate a clearing price of $100 to $104 per MW-day to serve customer needs without adding unnecessary costs. Our leaner, adjusted clearing price would lower customer bills without sacrificing reliable electric service and put an end to capacity payments propping up the bottom lines of uneconomic power plants, many of them in or near EJ communities.
Link to Report (Updated 11/30/2021)
Link to Presentation for PJM Cities & Communities Coalition
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