Prices still need to climb if the goal is new electricity supply, a panel of experts sponsored by the state Board of Public Utilities argued on Aug. 5.
The soaring prices for electricity have angered ratepayers and sent politicians scrambling for temporary fixes, yet they are not high enough to incentivize new investment, especially in an environment of regulatory uncertainty, the experts agreed in a discussion Tuesday at the College of New Jersey.
The panel discussions were designed to address the adequacy of energy resources, especially after a PJM Interconnection auction in July set new highs for capacity pricing. A seemingly staggering price of $329.17 per megawatt day was constrained by a price cap in place for this auction, but the expert consensus was that the price would have been at least 18% higher without the “collar” in place.
Experts from the utility industry and academia argued Tuesday that a price of $700 per megawatt day is needed to signal that investment in new generation is profitable – a price that is more than double the peak reached at Tuesday’s auction.
As ratepayers seethe over current increases, the Board of Public Utilities panelists agreed that a continued surge in demand will continue to put upward pressure on prices.
Four questions
Joe Accardo, a senior vice president at PSE&G, argued that four questions need to be addressed as part of “real planning” for electricity generation in New Jersey:
- Is the state comfortable with the current demand forecast coming from PJM?
- When we say we want affordability, how do we define it?
- What level of reliability are we willing to accept?
- How flexible are our environmental targets?
Accardo said true planning involves understanding definitions and trade-offs. He dismissed the usefulness of general energy master plans as drivers of high levels of investment.
Much of the panel discussion’s focus was on the Garden State, which is a net energy importer. The panelists said New Jersey’s dependence on other states to supply electricity, which means it is relying on energy generation that may not be aligned with the state’s clean energy goals.
Stu Bressler, a senior vice resident with PJM, warned that there are trade-offs to consider when calling for reforms in the electricity marketplace. Stability of the market is also a goal that influences price and should not be easily discounted, he said.
Katharine Perry, deputy director of the New Jersey Board of Public Utilities resource adequacy program, said the board expects significant increases in capacity prices next year — perhaps between $500 and $600 per megawatt day in the July 2026 auction. If that happens, she said, the wholesale cost of electricity would roughly double.
Richard Levitan of Levitan & Associates agreed on that trend, and said, “When the collar is removed in the not-too-distant future, we’ll be looking skyward.”
The news from the assembled experts was not comforting for ratepayers. New supply takes time and huge investment, and political issues add to the complexity.
Liam Baker, senior vice president at Alpha Generation, which operates fossil fuel plants in New Jersey, said, “We need to tone down the rhetoric and tone down the hostility.” That is especially so when the panel experts predict the fastest way to new supply is to upgrade fossil facilities, powered by oil and gas. That would require less investment than brand new infrastructure.
The blame game gets in the way of finding real solutions. Many public officials in New Jersey, including Chistine Guhl-Sadovy, the BPU president, have focused on the queue of projects lined up at PJM. Yet, the PJM annual report noted that two-thirds of the New Jersey projects in the queue would be offshore wind projects, which are no longer viable.
The trend is upward
Ratepayers are facing roughly 20% increases this year from 2024 rates, following the historic rise in bid prices at the capacity auction in July 2024. The PJM prediction is that another 5% seems likely from this year’s auction. Those numbers do not include the cost of infrastructure and grid upgrades that also will drive up the distribution price on customers’ monthly bills. A request from Atlantic City Electric for an 8% increase in its rate is still pending with the BPU. It was not factored into the discussions of the PJM auction results.
The scale and suddenness of the rise in electrical demand, the supply imbalance that characterizes the current market, and the time and level of investment needed to provide new generation all bode ill for any downward price corrections in the near-term.
The panel discussions leave the public in a troubling place. According to many on the panels, extraordinarily high current prices are likely to continue, even thought they are not yet high enough to drive the level of investment needed to produce significant new generation.
A number of panelists said the best way to increase supply in the short term will be rehabilitation of older or even already closed plants, which largely means using fossil fuel facilities — which would run counter to many state clean energy plans. Baker warned that political objections could be a major barrier for fossil fuel-based facilities.