SPECIAL REPORT MARKET UPDATE
On December 19th the FERC issued its decision regarding the PJM Capacity Market Reform which aims to address the impact of state subsidies on capacity prices by expanding the Minimum Offer Price Rule (MOPR-ex). Under previous capacity auctions, resources that were receiving state subsidies were not subject to the MOPR in the PJM capacity auction.
Implementation of an expanded Minimum Offer Price Rule means that state subsidized nuclear power plants in Illinois, New Jersey, and Ohio, as well as state-sponsored offshore wind, solar and storage procurements, will be subject to MOPR in future PJM capacity auctions. As FERC states in its order “We reiterate that if an out-of-market payment meets the definition of State Subsidy—including ZEC and RPS programs—then the State-Subsidized Resource is subject to the default offer price floor.”
Dissenting Commissioner Glick stated that MOPR-ex will raise capacity market costs by $2.4 billion annually. Proponents of MOPR-ex will likely view it differently, that it will prevent the suppression of capacity costs by $2.4 billion.
So will the new MOPR-ex rules significantly increase the 2022/23 Base Residual Auction capacity price? The new MOPR-ex is intended to prevent price suppression in the PJM capacity auction stemming from state subsidized resources bidding into the auction as if they had zero fixed costs. At the same time, any upward pricing pressure as a result of MOPR-ex will likely be offset by the impact of PJM’s excess system capacity.
PJM has 90 days to comply with the Order and lay out the new timetable for the 2022/23 Base Residual Auction.
Please feel free to contact your Champion Energy sales representative with any questions.