US Northeast power markets are unwell. What’s next?
“Policymakers are subsidizing certain resources to enter the market and policymakers are also subsidizing other resources to prevent them from leaving,” Travis Kavulla, director of energy and environmental policy at free market think tank R Street Institute said in February testimony before the US Senate Committee on Energy and Natural Resources.
According to a 2018 report by PJM’s independent market monitor, in the PJM market alone, subsidies were estimated to total $3.8 billion, although the number would be higher today, Kavulla said.
“This is a significant number when compared to the total revenue resulting from the PJM capacity auction—$10.3 billion for 2018,” he said.
Kavulla suggests a two-staged future could occur where in the short term, more state legislatures adopt policies that subsidize politically favored sources of electricity.
“However, in the medium-to-longer term, subsidies for electricity will cause regulated rates in those subsidy-prone states to rise, even while the overall effect of the subsidies—keeping more supply than is necessary to meet regional consumer demand—will suppress prices available on the wholesale market,” Kavulla told the Senate.
