The reliability pricing model and coal-fired generators in PJM

Abstract

We study the interplay between coal-fired electric power generator retirements, capacity markets, and environmental policies. We focus on the Reliability Pricing Model (RPM) electricity capacity market in PJM Interconnection L.L.C. (PJM). We find that RPM acts as a channel through which environmental regulations affect the supply mix. Surprisingly, increases in RPM prices lead to more coal retirements even when we control directly for increases in generator profitability induced by higher capacity payments. Increases in RPM prices signal the need for expensive capital improvements and increase the probability of coal retirement.