The following article is a contribution by Liz Stanton (director and senior economist) and Joshua Castigliego (researcher), at Applied Economics Clinic.
Richard Glick, the Chair of Federal Energy Commission, sparked a lot more interest from many ears. Appelled outThe “obsession” with increasing power plants revenues in the largest U.S. wholesale electricity market. It is not often that the nation’s top energy regulator speaks out so strongly, urging an end of the emphasis on “bolstering uneconomical generation” in the 13-state PJM interconnection region.
There have been Pay attentionBefore the ways PJMs annually market for electric “capacity power” power to meet future needs overbuys and overpays generator owners. However, prior analysis has mainly focused on the amount of excess capacity that was procured. Because individual power plant costs cannot be publicly disclosed, it is difficult to get more precise. But it would be beneficial for communities and state officials to have more details. What types of units are being paid, even though they have a limited capacity? What are the implications for environmental justice communities based on the plant’s locations?
Our research team used public information on the size, age, location, type, and history use of power plants to model the cost of existing and proposed coal and natural gas units in PJMs to buy capacity for 2021/22, which was held last year. We also mapped generators with respect to environmental justice groups using the DefinitionThe Department of Environmental Protection in Pennsylvania is where PJM’s headquarters is located. This refers to census tracts where more than 20% of residents are below the federal poverty line, or where more then 30% of residents are people of color.
We are available in all regions of PJM FindMost fossil fuel units exist within a mile or less of an environmental justice area. More than 80% are locatedWithin five miles. We have identified 77 units that are not economically generating and receiving excess payments from the PJM market. This is based upon modeling the plant’s capacity market offer prices as well as estimating the market clearing rate we might see in a more efficient-run PJM marketplace that is not overbuying.
One third of the 77 units that we estimate are receiving high market revenues in PJM is made up of proposed gas units. These units often rely on capacity payments to secure financing. Two-thirds of these units are currently on the grid. Significantly, the majority of these 77 “fat markets” coal or gas units are located within five mile of an environmental justice community. Nearly half of them are within one mile. We estimate that the excess capacity is being purchased by customers in the region for $4.3 billion.
There are some important takeaways at the state level. The PJM states of Pennsylvania, Ohio, New Jersey are home to the majority of the 77 fuel market coal and gas units 71%. According to our model, Pennsylvania has the highest number of proposed gas units that are receiving payments in the PJMs capacity market 2021/22. Pennsylvania contains nearly three quarters of all 26 proposed gas unit with fat market payments to PJM.
Maryland, New Jersey Ohio, Virginia and Ohio have a maximum of 5 miles between each gas and coal unit that is eligible for 2021/22 fat-market capability payments in PJM. Every fat-market unit in Delaware, Illinois, and Kentucky is located within 1 mile of an environment justice community.
FERC intervened last week to reform one factor that causes excessive capacity procurement at PJM. It ended the 10% “adder”, which PJM has been using to add to its already high assumed cost of building new generation. Other reforms are also required, including revising PJM’s exaggerated forecasting for the capacity it aims at purchasing. It is encouraging that FERC delayed PJMs next annual capacity marketplace to allow time for additional reforms. It is also encouraging to see the Resource Adequacy Senior TaskforceDiscussions underway at PJM to consider some Ten areas of reform.
Both nationally and in the PJM areaLow-income families and Black families are at greatest riskPower plant fine particulate emissions can cause death. As FERC Chair Glick recently stated, it is imperative to continue drawing attention to the ways that uneconomic and uneconomic fossil fuel production is prolonged by market flaws. We hope to raise awareness through our modeling and encourage PJM to be more involved in this endeavor. It is high time to find real solutions to the capacity markets that cause inequity, and increase consumer expense.