Fitch Ratings issued a report* today that says PJM's recent capacity auction results "indicate that a strong rebound in regional power prices appears unlikely."
Despite a whole lot of big talk by investor owned utility CEOs over the past several years that demand is going to explosively rebound at any second, the analysts aren't buying it. And furthermore, prospects for PJM merchant generators will remain "dim" for the foreseeable future.
What has killed prices on PJM's capacity market?
1. Demand management (users who are paid to reduce usage at peak demand periods)
2. Energy efficiency (users who are using less electricity overall through energy saving improvements to their home or business)
3. Distributed Generation (users who are now producing their own electricity on site)
This isn't really a big surprise. We've been talking about this here on the blog for quite a while. What is news is that now the credit rating agencies are also acknowledging it.
"Fitch expects demand response (DR), energy efficiency (EE), and distributed generation (DG) will play a large and growing role in PJM, either reducing total demand or displacing existing traditional generation thereby exerting a restraining, secular influence on future power prices."
This is bad news for companies like FirstEnergy.
"Capacity auction prices under the reliability pricing model (RPM) signal ongoing pressure on electricity margins and credit metrics of merchant generation companies operating in PJM. Fitch expects these companies to continue to rationalize operations to mitigate revenue and margin pressure, and sustain creditworthiness. Utilities most at risk are investment-grade-rated affiliated generators with high debt burdens relative to cash flows and earnings."
Even FirstEnergy's plan to "sell" one of their merchant baseload coal plants into West Virginia's regulated environment can't save them now. It looks like FirstEnergy will continue to flounder financially while it attempts to rip off its customers, and consumers in general, in order to try to fool investors and stay a float just a little while longer.
This is good news for consumers!
*Registration required (but it's free and worth it!)
Despite a whole lot of big talk by investor owned utility CEOs over the past several years that demand is going to explosively rebound at any second, the analysts aren't buying it. And furthermore, prospects for PJM merchant generators will remain "dim" for the foreseeable future.
What has killed prices on PJM's capacity market?
1. Demand management (users who are paid to reduce usage at peak demand periods)
2. Energy efficiency (users who are using less electricity overall through energy saving improvements to their home or business)
3. Distributed Generation (users who are now producing their own electricity on site)
This isn't really a big surprise. We've been talking about this here on the blog for quite a while. What is news is that now the credit rating agencies are also acknowledging it.
"Fitch expects demand response (DR), energy efficiency (EE), and distributed generation (DG) will play a large and growing role in PJM, either reducing total demand or displacing existing traditional generation thereby exerting a restraining, secular influence on future power prices."
This is bad news for companies like FirstEnergy.
"Capacity auction prices under the reliability pricing model (RPM) signal ongoing pressure on electricity margins and credit metrics of merchant generation companies operating in PJM. Fitch expects these companies to continue to rationalize operations to mitigate revenue and margin pressure, and sustain creditworthiness. Utilities most at risk are investment-grade-rated affiliated generators with high debt burdens relative to cash flows and earnings."
Even FirstEnergy's plan to "sell" one of their merchant baseload coal plants into West Virginia's regulated environment can't save them now. It looks like FirstEnergy will continue to flounder financially while it attempts to rip off its customers, and consumers in general, in order to try to fool investors and stay a float just a little while longer.
This is good news for consumers!
*Registration required (but it's free and worth it!)
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