According to PJM, its RPM capacity market is supposed to:
"...create long-term price signals to attract needed investments in reliability in the PJM region.
... stimulate investment both in maintaining existing generation and in encouraging the development of new sources of capacity – resources that include not just generating plants, but demand response and transmission facilities."
So, what is "capacity?" Capacity is the amount of electricity a generator is capable of producing if it ran constantly. However, generators don't run constantly, especially plants used only during peak demand. But PJM must assure that enough capacity is available to meet that peak demand, therefore suppliers must purchase capacity, not just the electric power they may happen to use. Capacity payments compensate generators for making capacity available, whether it ever actually produces a product that it gets paid for, or not. A generator cannot afford to remain ready to dispatch if it never does, and never sells any product to produce an income.
RPM auction prices are not "the cost of electricity," they just a small part of your total electric bill. The larger part is the cost of the generation itself. Different fuels (or no fuel in the case of renewables) and ways to produce electricity will produce different generation prices. Coal is now more expensive than gas, therefore the cost of electricity produced from coal will be more expensive than electricity produced from gas, although both are receiving capacity payments to be available all the time.
PJM's markets are supposed to balance all this to ensure reliability -- an adequate supply of electricity at all times -- at the lowest possible cost.
However, it didn't quite work for New Jersey and Maryland, two states that pay some of the highest prices in the region because they are electricity importers. Capacity prices were much higher than the rest of the region in those two states because they lacked adequate generation resources. PJM's answer to that was to build billions of dollars of new transmission to import generation with cheaper capacity prices into those states. New Jersey and Maryland waited years for PJM's capacity market to stimulate "development of new sources of capacity," but it never happened. Therefore, New Jersey and Maryland decided to take matters into their own hands to stimulate "the development of new sources of capacity" in their own states. Regulators in these states believe that local gas-fired generation will be a cheaper source of electricity for their consumers in the long run. They wanted to be released from being held hostage by an ever-shrinking pool of dirty generators in western PJM and take control of their own electricity markets.
New Jersey implemented their LCAPP.
Maryland implemented their RFP process.
Both programs successfully stimulated proposals for new generation, which would mean that incumbent generators at the exporting end of all those new transmission lines would now have real competition. The new generation proposals use currently low-priced gas for fuel. The incumbents rely heavily on coal and some more expensive nukes, therefore their generation may no longer be economic to import to Maryland and New Jersey. The incumbents have been screaming bloody murder and going to great lengths to try to halt Maryland and New Jersey's programs through the legal process. PJM, being the cartel of incumbent generators that it is, sided with its most powerful members and joined in the state utility regulator beat down at FERC and in the courts.
In addition to the fuel cost disparity, PJM and the incumbent generators have another problem on their hands -- the cost of those new transmission lines needed to import their product to New Jersey and Maryland. While the cost of a new generator will be paid for by those who use its electricity in New Jersey and Maryland, the cost of building new transmission lines is paid for by ALL electric consumers in PJM. A consumer's share is dependent on their share of regional peak load, therefore consumers in areas far from these new transmission lines will end up paying a higher percentage of cost than those who are receiving the lower electricity price benefits that the transmission line supposedly provides. So, while clueless bloggers hyperventilate over the "subsidies" ratepayers will pay for New Jersey's new generation, they fail to consider the cost of the alternative to building new generation -- generation imports via new transmission lines that will be paid for by others who receive no benefit and end up costing consumers much more than "subsidized" new generation in the long run.
Maryland's project, and several of New Jersey's projects, cleared PJM's capacity auction last month, which was the hurdle they needed to overcome to get started. The incumbent generators are completely beside themselves with worry that the captive market for their product is evaporating so quickly (never mind that decreased demand and fuel economics were already doing a nice job on their own). Now the incumbent generators and their investors are on the war path to distort media understanding of a very complicated subject. More legal wrangling is absolutely guaranteed, along with some propaganda from the incumbent generators' front group, The Compete Coalition.
New Jersey regulators do a nice job of defending their LCAPP program in the clueless blog, however the blogger just doesn't understand the entire concept therefore, he doesn't understand them and remains a faithful lapdog for incumbent generators and their spinmeisters who want to throttle real competition in electric generation.
"...create long-term price signals to attract needed investments in reliability in the PJM region.
... stimulate investment both in maintaining existing generation and in encouraging the development of new sources of capacity – resources that include not just generating plants, but demand response and transmission facilities."
So, what is "capacity?" Capacity is the amount of electricity a generator is capable of producing if it ran constantly. However, generators don't run constantly, especially plants used only during peak demand. But PJM must assure that enough capacity is available to meet that peak demand, therefore suppliers must purchase capacity, not just the electric power they may happen to use. Capacity payments compensate generators for making capacity available, whether it ever actually produces a product that it gets paid for, or not. A generator cannot afford to remain ready to dispatch if it never does, and never sells any product to produce an income.
RPM auction prices are not "the cost of electricity," they just a small part of your total electric bill. The larger part is the cost of the generation itself. Different fuels (or no fuel in the case of renewables) and ways to produce electricity will produce different generation prices. Coal is now more expensive than gas, therefore the cost of electricity produced from coal will be more expensive than electricity produced from gas, although both are receiving capacity payments to be available all the time.
PJM's markets are supposed to balance all this to ensure reliability -- an adequate supply of electricity at all times -- at the lowest possible cost.
However, it didn't quite work for New Jersey and Maryland, two states that pay some of the highest prices in the region because they are electricity importers. Capacity prices were much higher than the rest of the region in those two states because they lacked adequate generation resources. PJM's answer to that was to build billions of dollars of new transmission to import generation with cheaper capacity prices into those states. New Jersey and Maryland waited years for PJM's capacity market to stimulate "development of new sources of capacity," but it never happened. Therefore, New Jersey and Maryland decided to take matters into their own hands to stimulate "the development of new sources of capacity" in their own states. Regulators in these states believe that local gas-fired generation will be a cheaper source of electricity for their consumers in the long run. They wanted to be released from being held hostage by an ever-shrinking pool of dirty generators in western PJM and take control of their own electricity markets.
New Jersey implemented their LCAPP.
Maryland implemented their RFP process.
Both programs successfully stimulated proposals for new generation, which would mean that incumbent generators at the exporting end of all those new transmission lines would now have real competition. The new generation proposals use currently low-priced gas for fuel. The incumbents rely heavily on coal and some more expensive nukes, therefore their generation may no longer be economic to import to Maryland and New Jersey. The incumbents have been screaming bloody murder and going to great lengths to try to halt Maryland and New Jersey's programs through the legal process. PJM, being the cartel of incumbent generators that it is, sided with its most powerful members and joined in the state utility regulator beat down at FERC and in the courts.
In addition to the fuel cost disparity, PJM and the incumbent generators have another problem on their hands -- the cost of those new transmission lines needed to import their product to New Jersey and Maryland. While the cost of a new generator will be paid for by those who use its electricity in New Jersey and Maryland, the cost of building new transmission lines is paid for by ALL electric consumers in PJM. A consumer's share is dependent on their share of regional peak load, therefore consumers in areas far from these new transmission lines will end up paying a higher percentage of cost than those who are receiving the lower electricity price benefits that the transmission line supposedly provides. So, while clueless bloggers hyperventilate over the "subsidies" ratepayers will pay for New Jersey's new generation, they fail to consider the cost of the alternative to building new generation -- generation imports via new transmission lines that will be paid for by others who receive no benefit and end up costing consumers much more than "subsidized" new generation in the long run.
Maryland's project, and several of New Jersey's projects, cleared PJM's capacity auction last month, which was the hurdle they needed to overcome to get started. The incumbent generators are completely beside themselves with worry that the captive market for their product is evaporating so quickly (never mind that decreased demand and fuel economics were already doing a nice job on their own). Now the incumbent generators and their investors are on the war path to distort media understanding of a very complicated subject. More legal wrangling is absolutely guaranteed, along with some propaganda from the incumbent generators' front group, The Compete Coalition.
New Jersey regulators do a nice job of defending their LCAPP program in the clueless blog, however the blogger just doesn't understand the entire concept therefore, he doesn't understand them and remains a faithful lapdog for incumbent generators and their spinmeisters who want to throttle real competition in electric generation.
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