(Bloomberg) -- Embattled coal and nuclear power-plant operators stand to get a lot more money to provide capacity to the biggest U.S. electricity grid -- if they can hold on for another three years.
Generators are going to make $140 a megawatt-day for the year starting in June 2021, 83 percent more than the prior year, according to the results Wednesday of an auction by PJM Interconnection LLC. It was the first increase in three years and 19 percent more than the highest analyst estimate compiled by Bloomberg. They ranged from $75 to $118.
“Everybody’s going to be happy tonight,” said Kit Konolige, a utility analyst for Bloomberg Intelligence. “It’s got to be a few billion dollars extra for your friendly generators out there.”
Years of declining power prices have made it tough for plant operators, and at least 7 gigawatts of coal and nuclear capacity in the PJM region are at risk of closing by 2021. The higher rates will help generators and show that the market can still support these plants even as natural gas and renewables continue to gain market share.
The U.S. Energy Department is weighing a March request from FirstEnergy Corp.’s competitive power unit -- now in bankruptcy -- for government aid to help keep money-losing nuclear and coal-fired power plants online. Nuclear and coal proponents argue that their loss could imperil the reliability of the nation’s electric grid.
After years of rapid growth in gas plants, the pace of new entries was the slowest in seven years, according to a statement from PJM.
“You have had low energy prices, so it wouldn’t surprise me if people were saying, ‘Hey, if we’re gonna bid into this market, we’re going to require a higher level of revenue from capacity,’” said Paul Patterson, an analyst for Glenrock Associates LLC. “One year’s results does not a trend make. The capacity auction has shown some considerable volatility over the years.”
Nuclear capacity fell 7.4 gigawatts in the latest auction, and some “fairly large” coal plants failed to clear, Stu Bresler, PJM’s senior vice president for operations and markets, said on a conference call after the results were released. Half a gigawatt more coal capacity cleared, a fact which may reflect efforts to increase the plants’ efficiency, he said.
“New generators held back entering PJM this year, which drove up capacity auction results for 2021-22,” Toby Shea, a vice president at Moody’s Investors Service, said in an emailed statement. “Higher-than-expected prices are credit positive for all independent power producers operating in the region.”
Shares of generators with plants in the grid advanced, with Vistra Energy Corp., which acquired Dynegy Inc. assets in April, increasing as much as 4.4 percent as of 10:38 a.m. in New York trading. NRG Energy Inc. gained as much as 4.2 percent. The two companies are more sensitive to changes in PJM capacity prices than their peers, according to Goldman Sachs Group Inc. analysts in a May 14 note.
NRG reported $328 million in revenue from this auction, up 22 percent from the prior year and the highest level in three years. It cleared 4.74 gigawatts at $189.81 per megawatt-day, compared with 3.99 gigawatts at $184.04 in the prior auction. Vistra, meanwhile, reported capacity revenue of $559 million, up 23 percent from a similar Dynegy report the prior year. It cleared 9.78 gigawatts at an average price of $156.47, compared with 10.2 gigawatts at $122.19 in Dynegy’s year-ago report.
Grid zones that encompass the Chicago area and portions of southeastern Pennsylvania and New Jersey, which both soared last year, had more lackluster results than PJM’s grid-wide price. The Chicago-area zone, known as ComEd, increased 3.9 percent, while the Pennsylvania and New Jersey zone, known as Emaac, decreased 12 percent.
Shares of two companies with plant concentrations in those areas were mixed. Exelon Corp. was down as much as 0.9 percent while Public Service Enterprise Group Inc. gained as much as 1.1 percent.
PJM, based in Valley Forge, Pennsylvania, has been at the center of the shale gas revolution that’s displaced coal as the nation’s number one fuel source. It spans 13 states and serves more than 65 million people from Chicago to Washington. The capacity auction held each spring is designed to secure future generating capacity. Costs are passed along to households and businesses on their utility bills.
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