While steady capacity revenue streams and positive spark spreads have encouraged a wave of combined-cycle gas turbine, or CCGT, development in the PJM Interconnection region, Market Intelligence estimates suggest a wide range of financial performance. Specifically, S&P Global Market Intelligence projects that on an unhedged merchant basis, CCGT plants in Ohio have higher profitability than plants in New Jersey. This is attributable to greater seasonality of natural gas prices along the Atlantic coast relative to prices in Ohio and West Pennsylvania, where plants can access the abundant and low-cost gas from the Marcellus formation, closer to wellhead production. The difference in fuel costs is also reflected in the capacity factor of Ohio plants compared to that of New Jersey plants. Least-cost generators will run more often and at higher generator margins, or spark spreads.
The Marcellus gas region, underneath Eastern Ohio, Pennsylvania, West Virginia and Western New York, provides a large supply of gas. While that natural gas flows relatively unconstrained and at low prices to New Jersey and New York during the summer, pipelines become constrained during periods of high heating-season demand, leading to much higher spot prices along the coast compared to the Marcellus region. Natural gas forward markets have reflected this difference in prices for the last several years.
To illustrate this difference, Market Intelligence evaluated the forecast unhedged margins of representative power plants in Ohio and New Jersey. The open margin analysis assumes market rates for electricity, capacity and input natural gas. Contracts and hedges in place for these CCGT plants could materially change their actual financial performance.
The forecast of operating margins for the Woodbridge Energy Center in New Jersey and the Washington Generating Facility in Ohio illustrate higher profitability in Ohio. The total margin for the Woodbridge Energy Center and Washington Generating Facility, considering both spark spreads and capacity margins, is forecast between $12.50/MWh to $18.50/MWh from 2020 to 2030. The estimated total margins necessary to meet minimum revenue requirements are higher for the Woodbridge Energy Center in New Jersey than the Washington Generating Facility in Ohio due to differences in the capacity factor and net generation at the plants. The Woodbridge Energy Center does not meet its minimum reserve requirement in any year of the forecast and falls short by as much as 25%.
By contrast, the estimated return for the Washington Generating Facility is between Market Intelligence estimates for minimum revenue requirements and revenue needed for a full return. The Ohio facility meets the revenue requirements to meet typical debt covenants in every year of the forecast and provides more than the estimated full return requirements after 2025.
The Woodbridge Energy Center profitability is similar to that of other gas plants in New Jersey such as Linden CC, Red Oak, Newark Energy Center, Sewaren Gas Power Plant and West Deptford. The Washington Generating Facility profitability is similar to that of other gas plants in Ohio: Hanging Rock, Waterford Energy Facility, Oregon Clean Energy Project, Lordstown Generating Station, Carroll County Energy Center and Middletown Energy Center.
In 2018, the reported Woodbridge Energy Center capacity factor is 72%, while the Washington Generating Facility reported a capacity factor of 77%. For 2020, the Market Intelligence Power Forecast projects a lower capacity factor at Woodbridge of 51%, while Washington Generating Facility is projected to run more, close to 88%. With natural gas prices expected to decline over the next few years, the competitive advantage of the Ohio CCGT plants in wintertime is expected to grow. As the number of new CCGT projects in the Marcellus region grows, plants on PJM's eastern seaboard may face greater risk of displacement and financial impairment. New Jersey is scheduled to reenter the RGGI market in 2020 and this may further decrease the margins for New Jersey CCGT plants.