trending Market Intelligence /marketintelligence/en/news-insights/trending/at3toyxvrprlqmnvcz1wew2 content esgSubNav
In This List

Shift in PJM generation mix could increase winter power price volatility


Infographic: U.S. Solar Power by the Numbers Q2 2023


Infographic: U.S. Energy Storage by the Numbers Q2 2023


Insight Weekly: Bank mergers of equals return; energy tops S&P 500; green bond sales to rise


Insight Weekly: US companies boost liquidity; auto insurers hike rates; office sector risk rises

Shift in PJM generation mix could increase winter power price volatility

As pipeline capacity growth increases market access to cheap natural gas and continues to support PJM Interconnection's shift toward natural gas-fired generation, the mid-Atlantic power market can expect more volatile power prices during the winter, analysts said.

Morningstar's director of power and gas research, Matthew Hong, said during a March 28 webinar that he expects the market's combined-cycle gas-fired generation to increase by about 7,000 MW, or 16%, through 2023. At 13%, wind generation shows the second-highest growth rate but only represents 1,100 MW of new capacity, he said. From 2018 through 2022, an S&P Global Market Intelligence analysis shows 4,311 MW of coal-fired capacity retiring in PJM.

"With lower power and capacity prices, coal and nuclear generators are finding it much more difficult to compete," he said. "We expect additional retirements ... especially absent any statutory change."

Stakeholders, as well as federal and state officials, have proposed various schemes including market rule changes and subsidies to help prop up coal and nuclear plants. But Hong said, "Support for this action is somewhat mixed."

Also on March 28, FirstEnergy Corp. announced it would retire more than 4,000 MW of nuclear capacity it operates in the region. On March 29, it asked the U.S. Department of Energy to issue an emergency order that would require PJM to compensate coal-fired and nuclear power plants "for the full benefits they provide to energy markets and the public at large."

Hong said he expects power-sector natural gas demand in PJM to grow by 2.3 Bcf/d by 2021 and LNG exports through Cove Point, which began earlier this month, could add another 700 MMcf/d of demand.

"Additional attention will need to be given during the winter months as shipments to Europe increase from weather-driven demand there," he said.

"As ... combined-cycle units fill the void [left by retiring capacity], power prices could see greater intraday volatility as peaking requirements push fuel input prices higher," he said. "In the near term, coal generators should continue to provide a bit of a price ceiling in the winter as higher prices would encourage coal generators to turn on."

Hong expects power price spikes to be temporary and he is bearish on long-term average prices.

"The fact that loads are structurally bearish, and supply is more reliant on cheap natural gas, the long-term trend toward higher [power] prices seems to be unlikely," he said.