PJM Power Market and the Impact on the Coal...
Transcript of PJM Power Market and the Impact on the Coal...
PJM Power Market and the Impact on the Coal IndustryImpact on the Coal Industry
Hank BaumannNorth Carolina Coal Institute
April 16, 2015
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TopicsTopics
Formation and Transformation of PJM Formation and Transformation of PJM Market Impact What does this mean for you?y
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PJM HistoryPJM History
Founded in 1927 by Pennsylvania Power & Light Philadelphia Electric and Public Service Electric Light, Philadelphia Electric, and Public Service Electric & Gas of New Jersey. Original name was Pennsylvania‐New Jersey Interconnection (PNJ).
Became PJM in 1956 when Baltimore Gas & Electric and GPU joined.
PEPCO joined in 1965 ACE and DP&L joined in 1981 PEPCO joined in 1965, ACE and DP&L joined in 1981.
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PJM History (continued)PJM History (continued)
PJM’s primary task is to ensure the f li bili d i f h b lksafety, reliability and security of the bulk
electric system.
Share energy and capacity resources. Energy “split savings” Installed capacity
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PJM EvolutionPJM Evolution
In 1997, PJM became the nation’s first fully functioning Independent System Operator functioning Independent System Operator (ISO) and established the first bid‐based energy market.I l t d k t f i 8 d Implemented market reforms in 1998 and 1999 to facilitate open access and create sufficient capacity to enhance reliability. Locational Marginal Pricing (LMP) Capacity market adjustments
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PJM TodayPJM Today
Membership: 875+ entitiesp 75 Generating capacity: 183,604 MW Peak demand: 165,492 MW Transmission lines: 62,556 milesTransmission lines: 62,556 miles Annual energy: 793,679 Gwh Annual billings: $33.8 billion States served: 13 + D CStates served: 13 + D.C. Size: 243,417 square miles Population: 61 millionSource: PJM Annual Report, May, 2014
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Independent System Operators (ISO)p y p ( )
In addition to PJM, there are 6 additional ISO’s within the United States:1) ISO New England (ISO‐NE)2) New York ISO (NYISO)2) New York ISO (NYISO)3) Midcontinent ISO (MISO)4) Southwest Power Pool (SPP)5) Electric Reliability Council of Texas (ERCOT)6) California ISO (CAISO)
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Regional Transmission Organizations/Independent System OperatorsOrganizations/Independent System Operators
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Market Impact
Electric demand Electric demand Economic activity Weather
Market Structure Organized market with economic dispatch Liquid, competitive and non‐discriminatory market Liquid, competitive and non discriminatory market Clearing market for energy and capacity Import capabilityN t t New entrants Merchant generators (traditional fuels) Renewables Demand Side Management (DSM)
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Load Growth - Impact of Economic Downturn and Efficiency Improvements350,000
Load Growth Impact of Economic Downturn and Efficiency Improvements
310,000
330,000
Wh)
Weather Normalized Load Trend Line(1.7% annual growth rate)
Projection
290,000
ad G
row
th (G
W
270,000
JM M
AA
C L
oa
Load Differential: - 19%Weather Normalized Load
230,000
250,000 PJ
Actual Load
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Jan-94 Jan-97 Jan-00 Jan-03 Jan-06 Jan-09 Jan-12 Jan-15
Merchant GeneratorsMerchant Generators
Not regulated by state utility commissions No guaranteed rate of return No guaranteed rate of return Difficult to pass along higher costs Prices dictated by markets, not regulation
Focus on free cash flow/EBIT, not EPS Leaner, more aggressive cost management
Capital constraints Capital constraints Market discipline determines winners and losers
Low generation costs a priority
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Natural GasNatural Gas
Shale gas from efficient horizontal drilling has dramatically reduced gas prices in recent years. Shale gas is expected to account for half of the US48 total Shale gas is expected to account for half of the US48 total
production by the end of 2015. 50% of shale production is expected to come from the
northeast fields of Marcellus and Utica in 2015. Th h i d b l b d The northeast is expected to be net long gas by year‐end.
Numerous pipeline infrastructure projects have been completed with many more under development to broaden distribution across the eastern US. o o S
Recent oil price reductions may eventually impact gas supply. About half the gas produced is associated with oil well
t t
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output.
Coal Generation in the Marcellus/Utica Basins
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PJM Average West Hub On-Peak & Off-Peak PricesPJM Average West Hub On Peak & Off Peak Prices
($/Mwh)
$140 00$150.00$160.00$170.00$180.00
Forward Prices
($/Mwh)
$100.00$110.00$120.00$130.00$140.00
$50.00$60.00$70.00$80.00$90.00
$0 00$10.00$20.00$30.00$40.00
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$0.00Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16
On Peak Off Peak
How Does This Impact You?o o p o
Market changes Market changes Lower Demand Efficient market More competitors Alternative supply
Change in coal buying fundamentals Seasonal variation Forward view Forward view Inventory management
Emphasis on flexibility
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