Post: Market Monitor finds PJM wholesale markets are competitive

Market Monitor finds PJM wholesale markets are competitive

PJM’s markets provided reliable service in 2024, but tightening supply and demand are impacting the competitiveness of the RTO’s markets, according to the 2024 State of the Market Report.
Published on March 13, the report from the Independent Market Monitor noted that energy prices in PJM in 2024 were set, on average, by units operating at, or close to, their short run marginal costs, although this was not always the case. This is evidence of generally competitive behavior and competitive market outcomes, although high markups for some marginal units did affect prices.
Energy prices increased in 2024, from 2023. The real-time load-weighted average LMP in 2024 increased $2.66 per MWh, or 8.5% from 2023, from $31.08 per MWh to $33.74 per MWh. The total cost of wholesale power increased $2.46 per MWh, or 4.6%, from $53.08 per MWh in 2023 to $55.54 per MWh in 2024. Energy (58.7%), capacity (6.6%) and transmission charges (31.9%) are the three largest components of the total cost of wholesale power, comprising 97.1% of the total cost per MWh in 2024. The real-time hourly average load in 2024 increased by 3.6% from 2023, from 86,193 MWh to 89,274 MWh.
But the report raised concerns that the results of the 2025-26 capacity market run in July were not competitive. It noted that the capacity market is getting tighter and the result will be higher capacity market prices. In a well-designed market, capacity market prices reflect the underlying supply and demand fundamentals. But the results of the last capacity market auction (2025-26) “illustrate the amplified impact of not getting the details of the market design right when the market is tight”.
While a significant increase in capacity market payments was based on the fundamentals, market design and market power issues resulted in actual capacity market payments that were approximately twice as high as needed in the 2025-26 auction. While some recent and proposed changes will likely improve the results of the 2026-27 Base Residual Auction, other recent changes, or proposed changes, will have the opposite effect.
The report recommended that the reference resource be a combustion turbine rather than a combined cycle and that the Effective Load Carrying Capability (ELCC) value is used to convert the gross Cost of New Entry (CONE) installed capacity (ICAP) terms for a CT to the gross CONE in unforced capacity (UCAP) terms be the ELCC based on winter ratings.
It also recommended that PJM should:
• ensure effective market power mitigation by committing all resources that fail the Three Pivotal Supplier (TPS) test on their cost-based offers
• enhance the management of interchange transactions to improve market efficiency and reliability
• revise the design and operation of ancillary service markets to better align with system needs and market efficiency and remove the 30% increase to the synchronized reserve reliability requirement
• improve the integration of generation and transmission planning processes to ensure that infrastructure development meets future demand efficiently
• enhance coordination between PJM and state regulators to align planning efforts with policy objectives and market requirements
• develop and implement strategies to address potential reliability issues arising from the transition to renewable energy sources and the retirement of traditional generation assets.