Representatives from natural gas pipeline companies, gas associations and Mid Atlantic power grid operator PJM Interconnection met recently to begin discussions about the impact of adding more natural gas-fired power plants in PJM’s territory. But news of the talks came just as analysts at Energy Security Analysis Inc. (ESAI) issued a report questioning whether the bulk of generation development underway in PJM will ever come to fruition.

“Much of the new generation being added in our area will be natural-gas fired. So, it’s appropriate for us to begin an early, proactive examination of the effects of that growth on the gas transmission systems that will be accessed for gas supply,” said Kenneth Mancini, senior engineer at PJM. “Our purpose at this first meeting was to build a common understanding about siting, funding and building natural gas pipelines to serve future generation needs of customers.”

Included in the discussions were reviews of the present generation capabilities within the PJM service area, natural gas availability and deliverability issues, growth forecasting, system expansion planning processes and regulatory and environmental issues.

In addition to PJM, participants included the American Gas Association, Columbia Gas Transmission, Dominion Transmission, Duke Energy Gas Transmission, El Paso Pipeline, Energy & Environment Analysis, the Interstate Natural Gas Association of America, National Fuel Gas, Piedmont Natural Gas and Williams.

However, a new report issued by ESAI this week casts doubt on whether the bulk of generation projects underway in PJM and due to come online within the next several years will actually get built.

While PJM Interconnection’s active generator queues remain substantial with more than 40,000 MW in development for startup within the next five years, only 10,000 MW of this capacity may actually make it on-line, according to ESAI’s latest “Project Evaluation Program” update.

“Over 60,000 MW of capacity has been formally withdrawn from the PJM queues over the last year or so,” said Paul Flemming, a senior analyst at ESAI. “In addition, some developers who intend to move forward with major projects have delayed start-up projections by months or years in some cases.”

ESAI noted that the PJM case is only one example of the hardships facing the development industry over the last year. “Contributing factors to the malaise paint a muddy picture for power plant developers,” ESAI said. This slowing pace of project completions poses problems for reliability planners in the Northeast. “Financing terms have tightened considerably for merchant projects. Debt-to-equity leverage ratios are much higher, requiring a strong balance sheet to stand behind large projects. Due diligence standards have also been raised,” according to Flemming.

Among the hurdles, it is becoming harder for generators to secure long-term power purchase agreements for unit output. “Developers can also face high transmission interconnection costs that can push a marginal project onto the withdrawn list,” ESAI noted. Also, ESAI said that FERC’s standard market design proposal for U.S. wholesale power markets “poses uncertainty with respect to outright pricing issues and future capacity payments.”

“Pool-wide pricing verses location-based marginal pricing can turn the economics of a plant with great fuel and transmission interconnect advantages into an economic white elephant if its electrical location is poor,” Flemming pointed out.

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