New gas build, coal retirements could make PJM next market with distressed power prices
A flood of new, efficient gas-fired plants is going to put downward pressure on PJM power prices, pushing more coal plants to the brink
The PJM Interconnection could be the next wholesale power market to see distressed power prices, leading to a fresh wave of coal plant retirements, according to an analysis by Moody’s Investors Service.
Coal is already under pressure in PJM, but with 22.7 GW of new, efficient gas-fired combined-cycle gas turbines (CCGTs) expected to come online in the next three to four years, PJM could be the next wholesale power market to see distressed power prices, says Toby Shea, vice president and senior credit officer at Moody’s.
“As more gas comes in, someone has to leave,” said Shea.
Hydraulic fracturing has brought a flood of new natural gas to the market, pushing down prices. In January the Energy Information Administration reported that 2016 gas prices were at their lowest levels in nearly 20 years, with spot prices averaging about $2.49 per million British thermal units (MMBTU) at Henry Hub, where the national gas price benchmark is set.
Gas prices have also fallen in the futures market, declining as much as 25% over the past couple of months to $2.98/MMBtu on the New York Mercantile Exchange.
Looking even further out, gas future contracts to January 2019 average about $3.28/MMBtu with a range between $2.84/MMBtu and $3.44/MMBtu. And forward looking estimates peg the price of gas at about the $3/MMBtu.
Cheap gas has prompted developers to build new gas-fired plants that they believe will be able to undercut existing plants. In a February report UBS noted there are 15 GW of CCGTs under construction in PJM with another 4 GW expected to clear the RTO’s upcoming capacity auction.