Oct. 3 (Bloomberg) -- A power plant proposed by NRG Energy Inc. in New Jersey will cost utility customers $838.9 million over a 14-year period as part of a state effort to ensure adequate electricity generation at times of peak demand.
The 660.1-megawatt plant in Old Bridge would receive so-called capacity payments starting at $328.77 per megawatt a day from June 2016 through May 2017 before falling as low as $215.78 in later years, according to a document e-mailed today by Greg Reinert, a spokesman for the New Jersey Board of Public Utilities.
Capacity payments are set through an annual auction held by PJM Interconnection LLC, which manages the 13-state grid in the eastern U.S. The auction is based on PJM’s estimate of total power needs over a 12-month period. Plants in the region bid for the capacity, with the lowest bids accepted first. The New Jersey contracts make up for the difference if the PJM capacity price falls below the state’s guarantee.
PJM’s capacity price for northern New Jersey in last May’s auction was set at $167.46 a megawatt a day for the year starting June 2015, down 26 percent from the previous auction.
Old Bridge wasn’t selected through the PJM auction in May 2012 and NRG will be required to bid next spring under the terms of the state contract, David Gaier, a spokesman for the company in Princeton, said in an e-mail. NRG hasn’t broken ground yet on the plant, he said.
The company’s bid will have to be approved in the auction next May for construction on the plant to start. Once the plant begins to generate power under terms of its agreement with PJM, the payments kick in. Capacity payments are a separate component on customer bills from monthly usage costs.
The guaranteed payouts NRG is poised to receive are “dramatically higher than market prices,” said Glen Thomas, president of the PJM Providers Group in King of Prussia, Pennsylvania, a coalition of suppliers in the eastern U.S. power market. “Rate payers aren’t on the hook for this yet.”
The plant would join projects from Hess Corp. and Competitive Power Ventures LLC that were approved for $2.1 billion in capacity payments last year by the New Jersey utilities board in Trenton, and which won slots in the capacity last May.
The three plants, with combined capacity of 1,949 megawatts, would receive guaranteed payments totaling $2.94 billion, based on data from the board.
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