Wednesday, May 28, 2014

More Bad News for RICl; PJM's 2017/2018 Auction Results

I'm guessing this subject was on Mike and Jimmy G's mind yesterday while sitting in the loo.
WOW!  The results of PJM’s auction for 2017/2018 to supply energy at peak demand is finished and the results are interesting.  Last year’s price was unusually low with an incredible number of imports being offered from MISO.  This gets a tad confusing for us in the Midwest, but the rule of thumb is ComEd and the Exelon generation surrounding Chicagoland is a part of PJM cut off from the rest of PJM towards the east.  The remainder of Illinois, Iowa, and Indiana are in MISO.  Here in north central Illinois this gets a bit blurred for a ratepayer following this part of the industry.

Bill at the Calhoun Powerline is correct.  RTO INSIDER did a great breakdown of the auction results.  The price of this reserve generation is up from last year’s price.  Last year’s price was unusually low as excess wind energy from MISO greatly influenced the auction.  In the last year PJM had some rule changes to importation of energy from MISO.  Plus, there is no guarantee the wind will be blowing in Illinois or Iowa when this energy is needed.  Consequently, import zones were created and wind’s ability to bid in this auction was greatly diminished based on its unreliability.

Here’s the big news.

Exelon disclosed in their SEC filing none of the energy generation from Byron or Quad Cities qualified for the $120/MW-day pricing.   Exelon's bid from Byron and Quad Cities was apparently higher than $120 from these two facilities.  Consequently, none of the generation from these plants is eligible to receive the auction price.  Exelon will therefore receive the spot price for generation from Byron and Quad Cities. 

The Chicago Tribune did a good report on this but Crain’s Chicago Business did a better job and has some interesting quotes. 

“We have an excess of capacity in the region,” said David Kolata, executive director of the Citizens Utility Board, which represents ratepayers. “That is objectively true right now.”

After a year and half of Exelon talking about curtailments or shutting down plants, CUB has finally come to the realization Exelon is not bluffing.  There is excess capacity and these plants are struggling to make a profit.  With a reduction in demand because this is not the Pre-Obama economy anymore, an overbuild of wind generation from Obama-Stimulus with the 30% Investment Tax Credit and checks written to the wind companies, plus a build out caused by cheaper natural gas, there is too much generation in the Illinois market.  State policies intended to enhance wind energy with Renewable Portfolio Standards and federal policies with “stimulus” have made a mess of the energy industry. 

With Bryon and Quad Cities not receiving pricing from the PJM reserve auction shows a couple things that are bad news for RICL and wind generation.  Thinking from a contrarian viewpoint, if there is already that much excess supply in the market, it’s probably not the wisest decision to allow RICL being built and allow more entry into the market.  Yes, the AWEA can argue nuclear is old and inefficient but nuclear is reliable baseload generation without the large subsidy wind has had with the Production Tax Credit.  

Wind energy's governmental policies have made a problem with a bubble market for wind.  It's becoming obvious and corrections are needed. 

More bad news for the investors of Clean Line Energy Partners LLC comes if Byron and Quad Cities are indeed closed.  Closing these two plants on the west end of Exelon’s market would likely free up transmission and make the proposed Rock Island Clean Line irrelevant. While closing these two plants shouldn't encourage market entry, it would change the dynamics of transmission availability.

Keryn at STOPPATHWVBLOG explained this news to me about Exelon’s potion of the PJM reserve auction further and probably the best analysis.

What it means is that Exelon had those two nukes priced higher than the $120MWD clearing price.  Here’s how PJM’s auction works:  generators bid in the cost of standing by to produce.  PJM stacks the bids from lowest to highest.  When the capacity target is met, the highest bid in the stack becomes the clearing price, or the price paid to all the generators who bid.  Any generators who bid above the clearing price are then out of the running for capacity payments.  So, it’s a game for these generators… do they bid low, below their operating price and hope PJM doesn’t know they bid artificially low (because there are market manipulation rules, remember) and hope that the clearing price is going to be high enough to cover their costs, or do they bid at actual cost and hope the other bidders do as well.  Wind bids in very low, but PJM only counts it at 13% of nameplate capacity, so it takes a lot of wind to really do damage to the clearing price.  But, that’s sort of what happened last year, and why PJM put the Capacity Import Limit in place this year.  In addition, all these wind imports that were bidding in PJM had no way to actually deliver if called because they were not required to have firm transmission rights into PJM.  Now they are.  One of PJM’s problems before the CIL was that many of the wind resources bid in were using MISO transmission to get into PJM.  At any time, MISO could call those transmission resources to do something else besides deliver to PJM, and there’s nothing PJM can do about it.  So, PJM has barred those kind of imports from now on.  Imports must have firm transmission that is controlled by PJM.  This includes RICL’s 1192.  So Iowa wind farms can bid in at 13% of name plate capacity until they reach 1192 MW.  How many wind farms is that?

Another nail in the coffin for RICL and GBE.  While RICL would be 3,500 MW's of HVDC and sourcing 4,000 MW's of wind turbines, only 1192 MW is secured for transmission into PJM and of that only 13% is allowed for the reserve auction.   Skelly’s response will be interesting if he cares to respond at all. It's probably becoming a stressful time in Houston.  In moments like these, I like to go to the loo and enjoy the peace of my Picasso.

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