Natural gas-fired power plants are running more frequently in the PJM Interconnection, accounting for even larger shares of electricity in the nation’s biggest wholesale market, according to the Energy Information Administration (EIA).
The increase in PJM’s capacity factors, an indication of how often a generator is run, for gas-fired facilities is the largest of any regional transmission organization in the country over the last five years, EIA said in a note on Wednesday. The trend comes as gas-fired facilities have proliferated in the market because of an abundance of cheap Appalachian shale gas, making the fuel more cost-competitive with coal, which has long been king in the region.
EIA said average annual capacity factors for gas-fired combined-cycle generators in PJM first surpassed those of coal-fired generators in 2015. The monthly price of Central Appalachian coal in PJM, EIA noted, has averaged $2.76/MMBtu, while local natural gas spot prices fell below the price of coal years ago and have remained lower since with the exception on winter spikes.
That’s helped force older generating units to retire. From 2013-2017, an estimated 14.4 GW of coal capacity in PJM retired, or about 19% of the region’s total, EIA said. About 1.8 GW of gas-fired capacity was retired, but 11 GW were added, increasing the region’s capacity by 18%.
The higher capacity factors also indicate a shift in daily power plant operations, according to EIA. Gas-fired facilities have historically been used for intermediate load or peaking resources. The increasing capacity factors, EIA said, demonstrate that the gas-fired facilities are becoming more competitive with coal for baseload operations.
More gas is expected to come online in PJM, which serves all or parts of 13 states and the District of Columbia, including shale-rich Ohio, Pennsylvania and West Virginia. There are about 25 gas-fired facilities under construction or being upgraded in PJM, according to its service queue.
In a separate note to clients on Tuesday, Morningstar analyst Dan Grunwald said as winter approaches coal generation usually increases “to match or beat” gas-fired generation as the heating degree days begin to climb. But he noted that so far this year that hasn’t been the case, reflecting the increased Appalachian pipeline takeaway capacity that’s delivering more product.
Clearview Energy Partners LLC said earlier this week it expects up to 16 Bcf/d of pipeline capacity to come online by the end of next year, with the bulk of that expected in the coming months.
More takeaway has narrowed price discounts relative to Henry Hub, which could again leave coal and gas to do battle in the power markets if prices continue to climb and coal falls on lackluster demand.
“The coming winter will provide an interesting test for forward coal and gas prices in terms of the PJM generation ratio,” Grunwald said. “In case of a mild domestic winter, natural gas supply will be healthy, causing lower prices. At the same time, a mild winter overseas will discourage coal exports and put downward pressure on prices to undermine the trend to higher gas generation at home.”
While price dynamics could help coal in the short-term, Grunwald said, Morningstar still sees coal continuing to level off and in the long-term “natural gas has taken the crown and is now officially king in PJM.”
The shift toward gas and increasingly efficient renewables has also posed thorny issues for regulators and grid operators alike.
Electricity prices have plummeted, undermining parts of the competitive power markets and raising questions about the grid’s resiliency as more baseload coal facilities retire.
In response, states have enacted subsidy programs to support nuclear facilities and a debate continues about whether similar measures should be pursued for coal. PJM is currently in a proceeding before the Federal Energy Regulatory Commission as it tries to wrestle with accommodating such subsidies and the effects they’re having on the broader market.