Locational marginal prices in PJM respond to demand and fuel costs.
Andrew L. Ott is senior vice president-markets for PJM Interconnection. E-mail him at firstname.lastname@example.org.
The evolution of real-time locational marginal prices (LMP) in PJM Interconnection’s wholesale electricity markets demonstrates the characteristics of a well functioning and competitive market; prices are driven by supply and demand fundamentals. Although critics of wholesale electricity markets frequently have pointed to increases in LMP as proof that the wholesale markets aren’t working, in reality, the markets are working as they should. Increases in LMP are driven by higher demand for electricity or increasing fuel prices. Critics of wholesale markets, however, often fail to acknowledge that decreases in demand and fuel prices also immediately lead to declining LMP.