The already significant pace of coal plant retirements in
PJM Interconnection is about to kick into high gear over
the next couple of months, according to a new study by
Genscape.
The onslaught of coal capacity retirements in May and June
could likely exert upward pressure on power prices in PJM,
which have so far been running below 2014 levels, according
to Genscape.
From June 2014 through the end of March 2015, more than 2.5
GW of generation has retired within the PJM footprint, and a
number of retirements are planned for the next couple
months, Genscape said in the white paper, which was shared
with GenerationHub.
That first major wave of retirements was primarily coal,
along with some natural gas and oil-fired capacity.
More than 1.4 GW of capacity in PJM is set to retire this
month. The May retirements will be followed by another round
of retirements set for June 1, 2015, when more than 7.3 GW
of capacity is scheduled to be deactivated.
“Should any of the units slated to retire on June [1] come
offline in May, there is significant bullish risk to prices
especially during the last week of May,” Genscape said. “The
retirements that are coming in June are major, baseload coal
units in Western PJM including Big Sandy (800 MW), Tanners
Creek (988 MW), Muskingum River (1,400 MW), and Sporn (600
MW),” according to Genscape. All four of those facilities
are affiliated with American Electric Power (NYSE:
AEP).
Between April 15 and June 15 of this year almost 10,000 MW,
or 9,983 MW to be exact, are expected to have retired,
according to Genscape data. The vast majority of these
retirements come from coal-fired capacity – as well as some
oil and natural gas capacity.
The biggest driver behind the ongoing retirements is the
Environmental Protection Agency’s Mercury and Air Toxics
Standards (MATS), which set emission standards for hazardous
air pollutants from coal- and oil- fired electric utility
steam generating units of 25 MW or more.
Replacing some of the generation that is being retired, a
few major gas-fired generators have been built since last
May. These plants include the Dominion (NYSE:D)
Warren County (1,400 MW), LS Power affiliate West Deptford
(754 MW), and the Invenergy Nelson Energy (628 MW) projects.
These last two units are in Eastern PJM, however the overall
impact of the retirements is expected to overshadow the new
builds, Genscape said.
Genscape examines potential impact on prices
Each of the last four years has featured at least one day in
May where peak demand has been above 120 GW. “In order to
exceed this threshold, temperatures generally must reach
into the mid-80s to low-90s with dew points above 60°,” the
firm said. “However, each of the last [four] Mays has been
warmer than average, with the 120+ GW days falling in the
last week of the month,” according to Genscape.
Forecasts for the current month are calling for seasonal to
slightly below average temperatures, with generally dry
conditions. The peak demand day is still likely to fall in
the last week of the month.
The Genscape analysis looked at May 2014 high power demand
days -- and the weather conditions associated with the high
demand -- in Philadelphia, Washington, D.C., Richmond,
Pittsburgh, Cincinnati and Chicago.
“Heading into May, April 2015 prices have been, on average,
lower than April 2014 prices,” the firm said. “As of April
23, 2015, the WHUB [West Hub] and ADHUB [AEP/Dayton Hub] RT
OPA averages for the month are $39.05 and $32.25,
respectively. The average RT OPA prices for April 2014
settled much higher at $44.77 and $44.49 for WHUB and ADHUB,
respectively.”
Genscape said that 2014 prices in key parts of PJM were
“particularly bullish with persistent congestion and
slightly warmer and wetter conditions than seasonal
averages.”
“Forecasts for this May are calling for seasonal to slightly
below average temperatures, with generally dry conditions,”
Genscape said. Natural gas is also likely to continue to be
cheap and supply will not be constrained into the region,
Genscape said.
Genscape is a firm that provides data and analysis across
global commodity and energy markets.