EAGLEVILLE, PA — February 2023 marked a competitive and transformative year for PJM Interconnection’s wholesale electric energy market, according to the 2023 Annual State of the Market Report, recently released by Monitoring Analytics, LLC. This analysis of the wholesale electricity markets that traverse 13 states and the District of Columbia came from the Independent Market Monitor’s Office, led by Joseph Bowring.
“Based on our findings, the PJM energy market operated competitively in 2023,” Bowring announced in a briefing today. The report paints a comprehensive and insightful picture of the market’s structure, participant behavior, and overall performance.
Most notably, last year saw a significant decrease in energy prices compared to 2022, the likes of which have not been seen since the creation of the PJM markets in 1999. The real-time load-weighted average LMP (locational marginal prices), a key market pricing mechanism, fell by a dramatic 61.2 percent, tumbling from $80.14 per megawatt-hour (MWh) in 2022 down to $31.08 per MWh in 2023. This corresponds to a significant price dip of $49.06 per MWh.
This drastic reduction was largely due to the decreased costs of fuel, emissions allowances, and consumables, accounting for 64.7 percent of the decrease. In tandem, both coal and natural gas prices dropped in 2023 compared to the previous year. The report also detailed a slight dip of 3.0 percent in the real-time hourly average load, from 88,884 MWh in 2022 to 86,193 MWh in 2023.
When it comes to the total price of wholesale power, the decrease followed suit, with a 49.3 percent reduction from $105.30 per MWh in 2022, to a more modest $53.42 per MWh in 2023. Energy, capacity, and transmission charges were identified as the three largest components making up nearly 97 percent of the total price per MWh last year.
While energy prices were generally set by units operating close to their short-run marginal costs, results varied, indicating evidence of competitive behavior. In 2023, generation from energy sources saw significant shifts as coal units decreased 27.9 percent, and natural gas units saw an uptick of 8.4 percent. The report also highlighted a small 0.8 percent dip in oil units, a reduction of 8.1 percent in wind units, and an impressive surge, a 20.1 percent increase, in generation from solar units compared to 2022.
Net revenue from the energy market, a crucial metric of overall market performance and investment incentive, showed a decrease for all unit types in 2023 compared to 2022. New combustion turbines saw a 44 percent decrease; new combined cycles, a 46 percent decrease; new coal units, a 67 percent dip; new Nuclear plants, a 57 percent decrease; and new solar installations saw a 65 percent decrease. Both new onshore and offshore wind installations also saw decreases, by 61 percent and 62 percent respectively.
While total congestion decreased by $1,432.7 million (57.3 percent), a pertinent issue arose where customers ended up paying more for energy than it cost to produce due to binding transmission constraints and locational energy price differences. Only 70.0 percent of total congestion paid by customers during the first seven months of the 2023/2024 planning period was returned through the ARR (auction revenue rights) and self-scheduled FTR revenues offset. This highlighted a flaw in the PJM FTR market design that has resulted in customers receiving $4.0 billion less in congestion revenues than they should have received from the 2011/2012 planning period through the first seven months of the 2023/2024 planning period.
Through this annual report, the Independent Market Monitor continues to play a crucial role in evaluating PJM’s wholesale market operations, proposing improvements, identifying potential anti-competitive behavior and providing in-depth market analysis. The Monitoring Program is an independent watchdog in the complex world of energy markets.
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