White paper: Key Drivers of Ancillary Service Prices in PJM and Sensitivity Analyses of the NJ TransitGrid Economics [report]

Robert Broderick, James Ellison, Todd Levin
2017 unpublished
While there were differences among the scenarios, the range of new power plant annual profits were between $30 and $36 million.3 This tells us that the plant seems to be competitive in both the energy and regulating reserve markets, and is resilient to various conditions on the PJM system. It should be noted that a one-year analysis was performed in this study -both to examine how energy and ancillary service prices change with different PJM system-wide scenarios, and to determine how the plant
more » ... rmine how the plant might operate given those scenarios. The study team believes that this one-year result is a useful indicator of the level of plant generation, revenues, and profits that might be expected from selling into the PJM markets under the conditions represented by the study scenarios. This one-year result, however, should not be interpreted as an exact level of generation or profits that will continue unchanged over a 30-year period. As time progresses, there will be new resources entering the market that may impact energy prices, regulating reserve prices, or both. These new resources may be more efficient than the new NJ TransitGrid power plant. However, given the time it takes to permit and build new power plants, and the slow rate of load growth that drives the need for such new plants, this is a dynamic that takes place over many years. In addition, demand for ancillary services is likely to increase in the future, especially in a transmission constrained area where the NJ TransitGrid plant is located. Introduction Restructured electricity markets in the United States procure electricity by matching supply with demand through a series of day-ahead and real-time market clearing processes. Over the past decade these markets have expanded to include new products such as ancillary services (AS), long-term capacity, and financial transmission rights. FERC has recognized the importance of these new markets in ensuring system reliability (FERC, 2015): RTO market operations encompass multiple services that are needed to provide reliable and economically efficient electric service to customers. Each of these services has its own parameters and pricing. The RTOs use markets to determine the provider(s) and prices for many of these services. These markets include the day-ahead energy market (sometimes called a Day 2 market), real-time energy market (sometimes called a Day 1 or balancing market), capacity markets (designed to ensure enough generation is available to reliably meet peak-power demands), ancillary service markets, financial transmission rights (contracts for hedging the cost of limited transmission capability), and virtual trading (financial instruments to create price convergence in the day-ahead and real-time markets). This report focuses specifically on organized wholesale markets for ancillary services (AS), which are offered in some form by all seven U.S. ISO/RTOs. AS markets differ from energy markets in that demand 3 This includes sales to Amtrak, NJT M&E and HBLR traction load, PJM Energy and Regulating Reserve Markets, 23.2MW of sales to the Capacity Market, and revenue for Blackstart service. It does not include savings accruing to NJT through the avoidance of distribution, transmission, and capacity charges, nor does it include savings resulting from lower power prices to Amtrak that are charged back to NJT.
doi:10.2172/1762038 fatcat:sabgqwxp6nfsvomzxhkhgsihri