The recent PJM auction results have sent shockwaves through the energy market, signaling a significant shift in capacity prices. As detailed in our previous blog post, the auction outcomes have immediate and long-term implications for businesses in the PJM region. 

Key Takeaways

The PJM auction results pose several immediate risks and long-term challenges for businesses. This article will delve into the immediate impacts, explore the long-term effects, and provide actionable strategies for businesses to navigate this "new normal.":

• Understand the immediate risks posed by the PJM auction results.
• Gain insights into the long-term effects, such as market volatility, sustainability challenges, and the need for technological adaptation.
• Learn strategies for mitigating these impacts through advanced energy procurement, efficiency improvements, and comprehensive risk management plans.
• Discover how energy efficiency consultants can provide tailored solutions, market insights, and implementation support to help businesses navigate this "new normal."

The near-term risks ahead 

The impact of the auction’s results will start taking effect this June. Here are the immediate risks that ought to be prepared for:

• Higher Energy Bills: The most immediate impact is the significant increase in energy bills. Due to the higher capacity prices, clients can expect their costs to rise by 10-20% or more. This increase can strain budgets and affect overall profitability.
• Lack of Price Signals: Historically low prices have discouraged proactive planning, leaving many businesses unprepared for the current price surge. Without clear price signals, businesses may have delayed necessary investments in energy efficiency and demand management.
• Limited Options: The options available to businesses are now more constrained:
  • Fixed Prices: Fixed-price contracts will be significantly higher, reflecting the increased risk. While they offer price stability, the higher rates can be a financial burden.
  • Pass-Through:  Pass-through options offer more flexibility but expose customers to volatile prices. This can lead to unpredictable energy costs, complicating budget planning.
  • Demand Response & Distributed Generation: These can be more cost-effective solutions but require investment and careful planning. Implementing these strategies can help mitigate costs but involves upfront expenses and strategic foresight.

What this all means for the long-term

While the initial impacts are not to be dismissed, they signal the more significant changes that will occur and require a robust strategy to overcome. The implications include:

• High Prices for the Foreseeable Future: Experts agree that high-capacity prices will likely persist for at least 5-6 years. This prolonged period of high prices necessitates long-term planning and investment in energy management strategies.
• Volatility & Uncertainty: High prices, supply chain disruptions, and regulatory changes create a volatile market environment. Businesses must be agile and adaptable to navigate these uncertainties.
• Increased Focus on Demand Management: Businesses must prioritize demand management strategies to mitigate cost impacts and ensure reliable power. Effective demand management can help stabilize costs and improve energy efficiency.

What can be done: Two-Pronged Approach – Supply-Side & Demand-Side Solutions

Businesses must adopt a comprehensive strategy that addresses the supply-side and demand-side aspects of electricity usage to navigate the challenges posed by the PJM auction results effectively. 

Supply-side solutions focus on securing and managing the sources of electricity, ensuring stable and cost-effective energy procurement. 

Conversely, demand-side solutions aim to optimize electricity use within the organization, reducing overall consumption and improving efficiency. 

By integrating both approaches, businesses can mitigate risks, control costs, and enhance their energy resilience:

Supply-Side Solutions

• Energy Procurement: Secure the lowest available electricity rate through fixed-rate contracts, hybrid rate contracts, and reverse auctions. These strategies can help manage costs and provide price stability.
• On-site Generation: Implementing on-site renewable energy solutions, such as solar power systems, can significantly reduce reliance on the grid and mitigate the impact of PJM rate hikes. By generating your own electricity, you can achieve greater energy independence, stabilize costs, and enhance sustainability.

Demand-Side Solutions

• Energy Efficiency Projects: Implement projects that reduce energy consumption and improve efficiency. Upgrading lighting, HVAC systems, and building insulation can yield significant savings.
  • Building Automation & Controls: Integrating advanced technologies with real-time monitoring and control of your facility's energy usage, you can ensure optimal performance and significant cost savings.
  • LED Lighting Retrofits: Upgrading your lighting systems with comprehensive LED lighting retrofit solutions improves energy efficiency and enhances the lighting quality in your facility, leading to better productivity and lower maintenance costs.
  • HVAC/Mechanical Optimization: Maximizing your HVAC systems' efficiency and fine-tuning your mechanical systems to ensure they operate at peak performance, reducing energy consumption and extending equipment lifespan with expert optimization services.
  • Facility Asset Management: A comprehensive, holistic approach to managing your facility's infrastructure, including roofs, building envelope, pavement, and HVAC equipment, can help reduce overall energy usage.
• Demand Response Programs: Participate in programs that incentivize energy use reduction during peak demand periods. These programs can provide financial rewards and help balance grid demand.

How can Mantis Innovation help me?

Mantis Innovation is uniquely positioned to help businesses fortify themselves against the impacts of the PJM auction results. With two decades of experience, we have helped businesses throughout the PJM region unlock efficiencies within their energy management strategies. Our tailored solutions and programs are designed to lower long-term costs and consumption.

• Experience: Over 20 years of helping businesses in the PJM region. Our extensive experience lets us understand this market's unique challenges and opportunities.
• Capabilities: We offer comprehensive solutions for energy procurement, energy efficiency, and facility asset management. We take a holistic approach to energy management, ensuring that all aspects of your energy use are optimized.
• Process: A proven process to develop and implement effective energy management strategies. Our process includes thorough assessments, customized planning, and ongoing support to ensure success.

Conclusion

The PJM auction results are ushering in a "new normal" for the foreseeable future. While this shift cannot be changed, your strategy will be critical to surviving and thriving during this period. 

Mantis Innovation is equipped and ready to help you start and see you through the formation of your strategy. Contact us today to get peace of mind for the road ahead.