PJM capacity prices could soar again in next auction, Morgan Stanley says
Aug. 31, 2024 8:25 PM ET
By: Carl Surran, SA News Editor
 Gargolas/iStock via Getty Images
Capacity prices for most of PJM Interconnection's coverage area could hit a $695/MW-day price cap, more than double the record-high $270/MW-day reached in PJM's July capacity auction and driven by tight power supplies, Morgan Stanley said in an analysis this week reported by UtilityDive.com.
The potential jump in capacity prices for the 2026-27 delivery year auction set for December would push energy bills higher, Morgan Stanley said; when combined with PJM's previous capacity auction, the next auction could increase residential electricity bills by ~20%, according to the analysis.
"It would also likely increase political risk given yet another increase in customer bills - potential for re-regulation initiatives, subsidized generation, or restrictions on certain new load like data centers," the report said, according to UtilityDive.com.
With extremely tight supply-demand conditions, PJM's capacity market would be very sensitive to relatively small changes in power supplies, the analysis said.
"If there are a few GW of new power plants built, and this offsets any plants that exit due to retirement, prices could potentially swing between $300/MW-day and the [nearly] $700/MW-day maximum," the report said. "Considering these factors, we think there is a strong case that prices clear at $700 given the challenges in bringing significant new power plant capacity online in time (just an [18-month] time frame)."
Morgan Stanley's analysts said higher capacity prices would provide a financial boost to power plant-owning companies such as Vistra (NYSE: VST), Constellation Energy ( CEG), Public Service Enterprise Group ( PEG), NRG Energy ( NRG) and Talen Energy ( TLN). |
