This ICF white paper explores PJM’s restructured Reliability Pricing Model (RPM) that has provided higher capacity prices in exchange for greater availability of resources. The increase in prices reflects the risk penalties that generators will face if they underperform, and higher offer caps. Full implementation is not scheduled until the 2020/2021 auction when all purchased resources face Capacity Performance (CP) penalties. The higher capacity prices in the Base Residual Auction (BRA) and transition auctions provide additional revenue for select marginal coal and nuclear resources that did not clear in the prior BRA. Base Product prices in the BRA cleared at only a modest discount to CP Product prices due to lesser overall participation and higher bid levels for resources that did participate.
There is one more auction (the 2019/2020 BRA) before all resources are subject to the CP penalties. Given the current proposal to decrease PJM’s forecasted peak demand, BRA RTO prices for the 2019/2020 auction could be slightly lower than in the 2018/2019 auction. However, several other market developments, including more aggressive bidding by resources at prices closer to the cap, the Supreme Court ruling on DR participation and forthcoming winter performance and penalty experience, could significantly change this assessment.
To learn more about PJM's Restructured Reliability Pricing Model, download your copy of this white paper today.