Nevada Solar Dispute Nears Resolution After Court Remands Controversial Ruling

Picture of residential rooftop solar panels.A Nevada state court this week set aside part of the Public Utilities Commission’s controversial decision to change rates on existing solar customers because the Commission’s process lacked adequate notice to the public, but due to ongoing discussions between the parties the hotly contested issue may soon be at least partially settled anyway. Regardless of what happens at the Commission, the subject is certain to be revisited when the legislature next convenes.

The immediate result of the court’s ruling is that the part of the Commission’s order which would have reduced bill credits to customers who already have solar panels is set aside and remanded to the Commission, while the remainder of the ruling upholding the Commission’s order relating to new solar customers is affirmed.

But the court’s remand is likely to be superseded because the Commission, at a hearing coincidentally scheduled for tomorrow, will consider a settlement between utilities and customers to grandfather the 32,000 existing residential rooftop customers on the old rate for 20 years. If, as expected, the Commission ratifies the grandfathering agreement, the remanded case will become moot.

Since 1997, Nevadans have participated in a program called net energy metering, under which customers earn a kilowatt-hour bill credit for each kilowatt-hour of clean power they produce that exceeds their own consumption. The high value of the credit was a key factor in many Nevadans’ decision to install solar because the credit offset a meaningful portion of cost. The Commission’s recent decision radically changed the way credits are calculated and valued, and replaced the framework with a new system that values the excess much lower than before.

Recognizing that a critical element in the financial model for solar installations went away overnight, the Commission’s ruling caused nearly every solar installer to immediately abandon the state. The new formula also caused an uproar in the renewable energy community because it significantly reduces income that solar customers had been expecting to receive, causing what had been good investments to go under water (financially). The move to not grandfather customers also set a precedent that alarmed renewable energy advocates concerned that commissions in other states might follow Nevada’s lead.

While states do periodically shift gears on rates on a going-forward basis, it was well-known in Nevada that customers relied on the net metering tariff in making relatively significant long-term investments. While the Commission is legally entitled to change the tariff in a way that reduces payments to customers for excess solar production, for policy reasons such changes are often made only to new customers, not existing customers.

With regard to the process the Commission followed in this case, the court found that the Commission did not sufficiently notify the public of its intention, and therefore the public was deprived of its right to participate in the proceeding. It is well established in American law that public entities such as the Commission must provide notice of the matters before it. As to the question of how specific notice must be, the Nevada Supreme Court in a previous case explained that “[i]nherent in any notice and hearing requirement are the propositions that the notice will accurately reflect the subject matter to be addressed,” and that “notice must be specific enough to alert all interested persons of the substance of the hearing.” When notice is deficient, the court found, the result is a “denial of fairness and due process.” The requirement, which falls under the legal description “subject matter jurisdiction,” cannot be waived, does not require the affected parties to have been absent from the proceeding, and may be raised by any party or the court at any time.

The notice in this case not only did not include a sufficient description of the issue that was ultimately addressed, the notice specifically excluded the highly controversial matter by saying that the proposal “does not . . . [a]ffect the rights of [existing solar] customers in any way.” Based on the fact that courts as high as the Supreme Court of the United States have, for decades, held notice to be an “inexorable safeguard,” the Nevada court rejected a multitude of arguments that the deficient notice should not result in the court throwing out the Commission’s ruling.

However, the court also explained that its ruling in this case is limited to the procedural requirement of notice for existing customers, not to substantive policy issues related to existing solar customers or to anything relating to new solar customers. In fact, the court specifically rebuffed all objections raised by solar supporters relating to the validity of the Commission’s order on new solar customers, finding that the Commission’s order is not contrary to law, is not arbitrary or capricious, and does not violate the Contract Clause of the U.S. Constitution.

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100 MW Mustang Solar Project Begins Commercial Operation

Photo of Mustang Solar Project.
Mustang Solar Project

Thanks to a large new solar installation constructed by Recurrent Energy, a wholly owned subsidiary of Canadian Solar Inc., approximately 45,000 more homes in California will now have access to 100% renewable energy. The Mustang solar project, spread across 1,000 acres in Kings County, California, has reached commercial operation and is expected to produce 100 MWac/134 MWp of electricity.

“The commercial operation of the Mustang solar project continues a historic year that will see Recurrent Energy complete more than one gigawatt of U.S. solar photovoltaic (PV) projects,” said Dr. Shawn Qu, Chairman and Chief Executive Officer of Canadian Solar.

The renewable energy generated by Mustang’s single-axis trackers will be sold under long-term power purchase agreements to Sonoma Clean Power and MCE. The project is expected to produce enough electricity to power approximately 45,000 homes.

Sonoma Clean Power and MCE are both not-for-profit agencies, offering their customers the option of using environmentally friendly power, generated by renewable sources, like solar, wind and geothermal, at competitive rates.

The power purchase agreement allowed Recurrent Energy to secure a tax equity investment commitment from U.S. Bancorp Community Development Corporation. Adam Altenhofen, the bank’s vice president, commented on the reasons for the investment by saying “High-quality solar projects like Mustang are an important strategic investment for U.S. Bank, which provide jobs to local communities, while delivering clean, reliable energy to the state of California.”

Recurrent Energy employed approximately 450 during the peak of construction, and supported the local economy by spending more than $3 million on local construction materials and services such as food and housing. In terms of long-term economic benefits, the project will generate $3.6 million in tax revenue for the county and $8.1 million in tax revenue for the state.

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Wholesale Energy Prices Down Dramatically in PJM

Map of PJM Showing Locational Marginal Pricing

Real-time and day-ahead wholesale energy prices in PJM Interconnection, the regional grid operator serving 60+ million customers in 13 states and the District of Columbia, fell by more than a third in the first half of 2016 compared to the first half of 2015 according to a recent report from Monitoring Analytics, the grid operator’s independent market monitor.

The decline is attributed to lower fuel prices and lower demand for electricity. Specifically, the load-weighted average real-time locational marginal price* (LMP) was 36.0 percent lower in the first six months of 2016 than in the first six months of 2015. In terms of dollars per MW-hour (the cost of generating one megawatt of power for one hour), this means a decline from $42.30 to $27.09. Day-ahead prices declined by a similar amount, 36.8 percent, from $43.26 per MW-hour to $27.33 per MW-hour.

The first factor driving price, which is fuel, reflects a decline in the coal and gas commodity markets. The other factor driving LMPs down was reduced demand. Average load in the first half of 2016 was 5.3% lower than in the first half of 2015 (90,586 MW vs. 85,800 MW), and average offered real-time generation increased by 458 MW, from 156,679 MW to 157,137 MW.

While notable, this price drop will generally not be seen quickly by most residential retail customers for the following reasons:

  1. The price of energy is only part of the total bill that residential customers pay. The balance of the bill includes distribution charges (the utility’s cost of maintaining the local grid) and various taxes and fees.
  2. In addition to energy being only a portion of the bill, energy itself is comprised of multiple factors, LMP being only one. According to the market monitor’s recent report, LMP today is about two-thirds of the energy cost (the other third being capacity, transmission, and a few incidental energy-related services).
  3. Residential retail electricity prices, as well as most retail electricity prices in general, are usually set relatively far in advance and adjust slowly and periodically.

That said, the real-time prices addressed by Monitoring Analytics are a key signal for short, medium, and long-term contracts. Therefore, if low LMPs are sustained, as appears to be the case today, then these prices will eventually make their way into the prices all customers pay.

*LMP is defined as “the hourly integrated market clearing marginal price for energy at the location the energy is delivered or received.” The market for electricity on the PJM grid contains many delivery points (see map above), and the price at any given point is determined largely by the cost of the most expensive generator delivering electricity to that point at that particular time.

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Gas-Fired Power Generation Extends Dominance Over Coal

Photo of Siemens gas turbine.
Natural gas-fired combined cycle turbine (Siemens press picture)

For the first time ever, the rolling 12-month total of natural gas-fired power generation in the United States ending in January 2016 was higher than the rolling total for coal-fired generation. According to reports from the U.S. Energy Information Agency, this was not a one-month anomaly: the running 12-month totals for natural gas continued to be higher in February, March, and April 2016.

Rolling 12-month and monthly output of natural gas and coal-fired generatorsUntil as recently as March 2015, gas-fired generators had *never* produced more power in a single month than coal-fired generators. This graph shows coal’s historical dominance:Net generation by coal and natural gas, 2001 - 2015The gap between coal and gas has been slowly narrowing, and in April 2015 electricity generated from natural gas-fired sources for the first time exceeded generation from coal-fired sources.Net generation by fuel type, March 2015 - March 2016The turn toward from coal to gas is small but decisive: Although coal-fired generation narrowly regained the lead in May and June of 2015, since that time gas-fired generation surpassed coal-fired generation in eight out of nine months (relinquishing it only in January, 2016, when coal produced 113,750 MWh to 109,979 MWh for natural gas).

Natural gas’s surge in the power sector is driven by two factors: (1) a flight from coal due to costly new emissions requirements that challenge coal’s economics, and (2) a falling commodity price that helps even in the absence of environmental factors. The following graph shows the long-term decline in the price of natural gas:Average cost of fossil fuels for electricity generation (per Btu) for natural gas, monthlyThe dominance of natural gas is expected to continue, as demonstrated by a report from PJM Interconnection showing that natural gas accounts for a whopping 87 percent of all queued capacity rights.

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Smart City Challenge Winner Is Columbus, Ohio

Smart City Banner - Columbus, Ohio

The U.S. Department of Transportation has announced that Columbus, Ohio, is the winner of the Department’s Smart City Challenge. As winner of the Challenge, which attracted 78 applicants, Columbus will receive up to $40 million from the DOT and up to $10 million from Paul G. Allen’s Vulcan Inc. This $50 million will supplement an impressive $90 million “Acceleration Fund” that Columbus has already raised from other private partners to carry out its plan.

Key to Columbus’s proposal, which will be a model for cities across America, is the “Smart Columbus Electrification Plan,” which is comprised of five strategies:

  1. Displace carbon-intensive electricity generation with zero-carbon renewable power;
  2. Decarbonize regional vehicle fleets, relying mainly on electricity with efficiency and alternative fuels assisting;
  3. Build out smart transportation systems that reduce GhGs while improving mobility for residents, visitors and freight;
  4. Drive significant electrification into personal mobility through policy, investments and education; and
  5. Build out infrastructure for smart charging with EV grid-connectivity to lower EV adoption barriers.

Skyline of Columbus, OhioAchievement of the above strategies will be measured based on the following:

  1. Electricity Supply Decarbonization (including 915 MW of commercial/industrial wind/solar statewide, 3.4 MW of residential solar, and 1.33% annual improvement in grid and building efficiency);
  2. Fleet Electrification (300 EVs in public fleets, 448 EVs in private fleets, and 30 EVs for car/ride sharing);
  3. Transit, Autonomous and Multi-Modal Systems in the city (including a completed Bus Rapid Transit corridor and 3000 Dedicated Short Range Communications (DSRC) connected vehicles, 6 deployed autonomous electric vehicles for last-mile service and 10 kiosks w/common payment platform, and car/bike sharing);
  4. Driving Consumer Adoption (3,200 registered EVs by 2018 (encouraged by $1000/vehicle consumer rebates and $200/vehicle dealer payments), 100 events (such as multi-day EV test drives) with 7,500 consumers, and 15 dealer trainings with 200 participants); and
  5. Charging Infrastructure (1,000 new residential Level 2 chargers, 300 new public Level 2 chargers, and 10-15 public DC-fast chargers).

With the goal of developing a nationally replicable EV adoption and transportation decarbonization model for mid-sized cities, Columbus and its partners will explore a variety of financing mechanisms and policies necessary to attain scale. Examples include vehicle leasing for fleets based on total lifetime cost of ownership, solar financing including Property Assessed Clean Energy (PACE), Environmental Impact Bonds (EIBs), electric vehicle infrastructure banks (EVIBs), and regulatory approvals for utility investments in “smart” EV charging infrastructure at scale. The Smart Columbus team will also pilot innovative rebate programs to spur consumer investments in EVs and charging infrastructure.

The competition’s final round included brief videos from each participant; here is Columbus’s:

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Grid-Scale Solar / Battery Project Advances in Hawaii

Kauai SolarCity Solar Array

With the recent approval by the Hawaii Public Utilities Commission (PUC) of a landmark power purchase agreement (PPA) between the Kaua‘i Island Utility Cooperative (KIUC) and SolarCity Corporation, construction is expected to begin soon on what the parties believe will be the world’s first dispatchable utility-scale solar array.

Rather than providing power only when the sun is shining (but when load may be insufficient to require additional supply and thus result in curtailment of a valuable resource), the project’s innovative integrated storage enables the solar panels to generate and store power for use later in the day, when it’s needed (including after the sun goes down). This time-shifting is particularly important in Hawaii, which suffers from an abundance of solar generation when loads are relatively low, resulting not in the California “duck” curve, but the even more dramatic “Nessie” Curve:

HECO Nessie Curve

The PUC specifically expects KIUC to make the facility “curtailment neutral” by maximizing storage and dispatching the facility to manage peak loads, thereby also reducing the need to dispatch conventional oil-fired units. The parties expect to meet this requirement by storing 80-85% of the panels’ output in the on-site batteries for use during ramps and peaks.

The project, located next to KIUC’s Kapaia power plant, will consist of a 17 MW-DC (13 MW-AC) solar photovoltaic system, a 13 MW-DC (52 MWh) battery energy storage system, and related interconnection facilities. According to the terms of the PPA, SolarCity will build, operate, maintain, and repair the approved facilities. A news release from KIUC states that the energy storage system will be built with Tesla Powerpack lithium-ion batteries. (SolarCity’s Chairman is Elon Musk, who is also the CEO of Tesla Motors, Inc.)

Tesla Model S PowerWall

KIUC’s key arguments in support of its application to the PUC included:

  • SolarCity’s proposed contract price for solar generation with storage was significantly lower than that offered by others, which ranged from $230 to $300 per MWh;
  • This project offers the ability to schedule solar energy dispatch by storing approximately 80-85% of the panels’ output in batteries for use when needed (during ramps and peaks), thereby reducing the need for oil-fueled units by an expected 37,474 barrels per year; and
  • The facility will contribute nearly 5% to KIUC’s 2017 renewable portfolio standard goal and help KIUC attain its goal of meeting 50% of its annual electricity sales with renewable resources and obtaining 100 MWh of storage by 2023.

According to the Commission’s order approving the PPA, the contract price will be $145.00/MWh ($0.145/kWh), without escalation, for the entire 20-year initial term. The contract price takes into consideration the fact that SolarCity lacks the in-state income to fully utilize Hawaii’s renewable infrastructure tax credit. Instead, SolarCity will utilize the tax refund mechanism, which at $350,000 is 70% of the amount of the $500,00 credit. Should SolarCity obtain tax equity financing to fully monetize the state tax credit per system, the contract price will be adjusted to $139.00/MWh ($0.139/kWh).

Following the initial 20-year term, KIUC may request an extension of an additional 10 years; the contract price for the extension term, if one is entered into, will be agreed upon when the option is exercised.

All three PUC Commissioners, Randall Iwase, Michael Champley, and Lorraine Akiba, voted to approve KIUC’s application. Construction and commissioning of the facility is expected to take 6 to 9 months.

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Electricity Use Falls, Prices Follow

On March 7, I wrote about the high quantity of natural gas in storage this winter. Because natural gas is the fuel most prevalently used to generate electricity in most parts of the country, an increase in stored natural gas is likely due, at least in large part, to a decrease in withdrawals for power generation. Now that electricity usage data from January (the latest month for which data is available) is in, we see evidence of why storage is increasing. The U.S. Energy Information Agency reports that retail electricity sales volumes fell in 42 states and the District of Columbia in January (marked in blue below).

U.S. Electric Industry Retail Sales January 2016 over January 2015, percent change

On a percentage basis, Delaware led the pack in the year-over-year decline with a decrease of more than 15%. Next were New Jersey (-8%), Tennessee (-7%), Indiana, and Maryland (both down 6%).

Nationally, among the four end-use sectors which include Residential, Commercial, Industrial, and Transportation, the Residential sector experienced the largest decline in sales volume (-4.9%) in January 2016 compared to January 2015. The most likely cause for this decline was a reduced need for home heating in 2016 due to average temperatures being warmer than the year earlier.

To compare electricity consumption across time, the industry uses a metric called “Heating Degree Days.” The Heating Degree Day metric accounts for cooler or warmer temperatures. This adjustment is necessary because temperature is a key driver of energy consumption, particularly in the Residential sector; the Heating Degree Day adjustment accounts for temperature variations and allows an “apples to apples” comparison.

Heating Degree Days are calculated by how much colder the mean temperature at a location is than 65°F on a given day. For example, if a location experiences a mean temperature of 55°F on a certain day, there were 10 HDD (Heating Degree Days) that day because 65 – 55 = 10. The following graphic shows fewer Heating Degree Days, which means warmer weather (and therefore less need for heat) in the 22 reddish states across the Northeast, Great Lakes, and lower Midcontinent regions this January compared to January 2015. The largest Heating Degree Day decreases were found in the Northeast, with New Hampshire, Maine, Vermont, and New York the top four states with Heating Degree Day declines between 15% and 17%.

Change in Heating Degree Days, January 2016


Heating Degree Days increased in 28 states across the Southeast and West and the District of Columbia, indicating colder weather in these regions compared to last year. California had the largest Heating Degree Day increase, up 33%, followed by Florida, up 31%, and Nevada, up 23%. Despite the increase in some states, the country overall experienced a net decrease as indicated by the lower electricity usage described above.

As economists would predict, lower quantity demanded was generally accompanied by lower prices. The following map shows that average revenue per kilowatt-hour decreased in 27 states and the District of Columbia, and increased in 23 states in January compared to last year.

Change in Average Retail Revenues, January 2016

Average revenues per kilowatt-hour across all sectors were 9.96 cents in January, down 2.2% from last year. Hawaii had the largest decrease for the thirteenth month in a row, down 20% from last year as lower world oil prices continue to benefit Hawaii’s largely petroleum-fueled bulk power system. The next largest year-over-year declines were found in New York, down 13%, and Nevada, down 11% from last year. The largest year-over-year increase occurred in West Virginia, up 16%, followed by Washington, up 11%, and Delaware, up 9%.

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Offshore Wind Energy Area Identified in New York

Map of New York Wind Energy Area

The United States Bureau of Ocean Energy Management (part of the U.S. Department of the Interior) this week announced that, after four years of review, the process of delineating a Wind Energy Area off the shore of New York is complete. This process arose from an unsolicited lease application filed by the New York Power Authority in 2011. That application was for authority to construct up to 194 wind turbines, with each generating 3.6 megawatts (MW) for a total potential yield of nearly 700 MW of wind energy generation for the Long Island and New York City region. On the occasion of this week’s milestone, Sally Jewell, the United States Secretary of the Interior, said in a news release:

New York has tremendous offshore wind potential, and today’s milestone marks another important step in the President’s strategy to tap clean, renewable energy from the Nation’s vast wind and solar resources. We will continue to work with the State and local stakeholders through a collaborative effort as we determine what places have the highest potential and lowest conflict to harness the enormous wind energy potential off the Atlantic seaboard.

The 127 square-mile (81,130 acre) area identified this week, which begins approximately 11 nautical miles south of Long Beach, New York, and extends approximately 26 nautical miles southeast, was defined based on its suitability for wind energy development. Abigail Hopper, Director of the Bureau of Ocean Energy Management, said the following in a statement:

This is a great day for New York, and our country as we continue to diversity our nation’s energy portfolio. The area is large enough for a large-scale commercial wind project, which could make substantial contributions to the region’s energy supply and assist local and state governments – including New York City – in achieving their renewable energy goals.

The next step is for the Bureau to conduct an environmental assessment to determine potential impacts associated with issuing a lease. The assessment will also consider the impacts of conducting surveys and installing resource assessment facilities in the area. The Bureau may then move forward with steps to hold a competitive lease sale for commercial wind development in the specified area.

If a lease is issued, the lessee/developer will be required to submit a construction and operations plan for the Bureau’s review and approval. The Bureau will then prepare a site-specific document pursuant to the National Environmental Policy Act, and conduct necessary environmental consultations before making a final decision to approve the construction of the proposed project. As the process moves forward, the Bureau will continue to analyze issues and work with stakeholders before a decision is made to authorize the development of a wind power facility offshore New York.

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Overwhelming Response to Federal “Smart City Challenge”

The U.S. Department of Transportation (DOT), in partnership with Microsoft co-founder Paul Allen’s Vulcan Inc., has announced seven finalist cities, from a field of 78 submittals in a nationwide competition, for the DOT’s Smart City Challenge. The Smart City Challenge is designed to help cities begin to address the challenges that many communities — particularly mid-sized cities — will experience in the next few decades due to rapid population increases and rapidly growing demands on their transportation infrastructure.

To show what’s possible when communities use technology to connect transportation assets into an interactive network, the Smart City Challenge will concentrate federal resources into one medium-sized city. Funding of up to $40 million from the DOT (with an additional $10 million from Vulcan) will go to the winner to help define what it means to be a “Smart City “and become the country’s first city to fully integrate innovative technologies – self-driving cars, connected vehicles, and smart sensors — into their transportation network.

Barbara Bennett, President and COO of Vulcan, joined DOT Secretary Anthony Fox last week at the South by Southwest conference to announce the seven finalists. Commenting on the high number of Smart City applications, Ms. Bennett said:

The creativity and determination of the applicants to envision a greener future represents the best of American ingenuity. It is this kind of belief in the power of new ideas that drives Paul Allen’s commitment to solving some of the world’s greatest challenges. As the Smart City Challenge’s philanthropic partner, we hope to catalyze a transportation transformation across the country that will dramatically drive down emissions from this leading source of carbon pollution.

After a winner is selected, Vulcan will assist that city in the electrification of all possible modes of transportation, while also working with the city to lower the carbon intensity of delivered electricity and with the DOT to deploy associated technologies. Vulcan cites the following as desirable elements of a successful application:

  • Conversion of city vehicle fleets, public transit, and taxis from conventional (internal combustion) to electric.
  • Conversion of private fleets from conventional to electric.
  • Decarbonization of the city’s electricity grid.
  • Deployment or field testing of autonomous vehicles (bringing safety, traffic management, and environmental benefits).
  • Increased consumer adoption of electric vehicles.
  • Development of lessons learned, data-driven metrics, sustainable financing tools and other best practices that will comprise a “playbook” for other cities to follow.

Vulcan has selected Securing America’s Future Energy (SAFE) as its implementation partner. Through its projects Drive Electric Northern Colorado, Drive Electric Orlando, and the Energy Secure Cities Coalition, Securing America’s Future Energy has unique experience working with cities to create dramatic multimodal shifts in their transportation systems, providing analysis, implementing marketing and outreach plans, and offering overall support. This skillset will be particularly useful to ensure the city selected for the Smart City Challenge is successful in leading our nation to reduce its dependence on oil.

The seven Smart City Challenge finalists are:

  • Austin, Texas
  • Columbus, Ohio
  • Denver, Colorado
  • Kansas City, Missouri
  • Pittsburgh, Pennsylvania
  • Portland, Oregon
  • San Francisco, California

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Wholesale Power Markets in PJM Competitive, Says Independent Market Monitor

PJM IMM State of the Market 2015

The wholesale power markets through which electricity and related products are procured for more than 61 million people across 13 Eastern / Midwestern states and the District of Columbia were found to produce competitive results in 2015, according to Monitoring Analytics, the Independent Market Monitor for PJM Interconnection, the regional grid operator. The independent market monitor’s “State of the Market Report” includes analysis of market structure, participant behavior, and market performance for each of the products and services bought and sold through PJM, the largest grid operator in America.

Dr. Joe Bowring, the president of Monitoring Analytics, said in a news release:

Our analysis concludes that the results of the PJM Energy, Capacity and Regulation Markets in 2015 were competitive.

On the specific subject of the price of electricity, the market monitor found that:

  • Energy market prices decreased significantly from 2014 as a combined result of lower fuel prices and lower demand;
  • The load-weighted average real-time locational marginal price (LMP) was 31.9 percent lower in 2015 than in 2014, $36.16 per MWh versus $53.14 per MWh;
  • While fuel costs contributed to lower prices, the load-weighted average LMP would still have been 21.1 percent lower in 2015 than in 2014 even if fuel costs had not decreased; and
  • The load-weighted average price in 2015 was about 20 percent lower than the average of annual prices in all years from 1999 through 2015.

Generally speaking, customers consider low energy prices to be a good thing. In the long run, though, energy market revenues are an essential driver of generators’ net revenue, and net revenue is a key measure of overall market performance as well as a measure of the incentive to invest in new generation. New generation is widely considered to be beneficial because it is overwhelmingly gas-fired, and as such results in lower CO2 emissions than older generation. Therefore, maintaining prices that support new generation is, overall, good. In 2015, net revenues were positive for new investment in gas-fired units, particularly in eastern PJM zones, but market signals continued to be negative for coal and nuclear units.

On the subject of efforts by some to bypass the market, the market monitor is critical. One example cited is the efforts by well-intentioned integrated resource planners to provide non-market subsidies and non-market solutions for issues such as the mix and location of generation resources, the appropriate definition of resource diversity, and which technologies should be favored through exceptions to market rules. The market monitor also acknowledges the temptation by some to provide cost-of-service regulation as opposed to market-driven pricing. Addressing these non-market efforts, the market monitor writes:

[T]he market paradigm and the quasi-market paradigm are mutually exclusive. Once the decision is made that market outcomes must be fundamentally modified, it will be virtually impossible to return to markets. While there are entities in the PJM markets that continue to operate under the quasi-market paradigm, they have made a long term decision on a regulatory model and the PJM rules generally limit any associated, potential negative impacts on markets. That consistent approach to the regulatory model is very different from current attempts to subsidize specific uneconomic market assets using various planning concepts as a rationale. The subsidy model is inconsistent with the PJM market design and inconsistent with the market paradigm and constitutes a significant threat to both. (2015 State of the Market, Vol. 1, pp. 8-9.)

Noting that “the details of market design matter,” the State of the Market Report contains a series of recommended enhancements to existing market rules as well as the a recommendation to implement new rules that the market monitor believes are required to maintain competitive results in PJM markets and for continued improvement in the functioning of PJM markets.

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