PJM RPM auctions could hold more surprises

Ron Norman, energy capital markets expert at PA Consulting Group, discusses Maryland and New Jersey reliability pricing model (RPM) capacity markets with Peter Marrin of SNL Energy. Ron says PJM Interconnection LLC’s forward capacity market structure remains flawed and is not fully effective at encouraging new thermal generation capacity without outside intervention. Ron notes that as a result, forthcoming auctions could continue to produce surprising results.

Ron is quoted: “I think there are some key elements to the [reliability pricing model, or RPM] structure that are not as effective as they need to be to allow the market to work well without these outside-the-market constructs like New Jersey and Maryland have been seeking to put in place.”    

In the article, Ron outlines four key elements to an effective capacity market: lead time, market power mitigation, tenure and transparency.

Assessing all four elements in the  Maryland / New Jersey RPM capacity markets, he says that lead time was ok and market power mitigation had been addressed. He notes that tenure required -and was- getting attention, and “transparency is one that we have said for quite some time is lacking in the RPM market.”

To read our thinking on the current state of the US capacity markets, click here.

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