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Key Findings

Japanese and Korean investors should reassess the growing financial risks to both their new and existing gas-fired power projects in the United States’ Pennsylvania-New Jersey-Maryland (PJM) system.

PJM’s gas-fired power will be increasingly challenged by renewable competitiveness, PJM overcapacity, global events, gas prices, government actions, and local opposition going forward.

Executive Summary

Over the past decade, overseas investors have been drawn to what had been deemed a ‘golden age in U.S. gas’ and invested in the U.S. natural gas complex. International strategic and financial investors found U.S. gas-fired power assets to be a particularly attractive infrastructure opportunity: long-dated returns; cheap and plentiful local inputs; a well-regulated and legal backstop; and political support. Japanese investors were early participants. Korean investors arrived more recently.

Japanese and Koreans investors made large commitments to gas-fired power within the Pennsylvania-New JerseyMaryland (PJM) system. IEEFA estimates Japanese interests invested several billion U.S. dollars (USD) into PJM gas-fired assets since 2000, while Korea invested nearly half a billion USD in the past three years alone.

However, both the PJM market and U.S. political environment are evolving, and the ‘golden age of gas’ looks to have ended. U.S. public and private market questions about methane emissions from gas along a leaky supply chain now delay new projects and shorten investment return periods.

Against this backdrop, IEEFA and the Applied Economics Clinic (AEC) recently examined the growing risks to PJM gas-fired power projects, both general and specific to PJM. The risks can be broadly grouped into two buckets: efficiency (renewable competitiveness and PJM overcapacity), and policy (global warming, gas prices, government actions, and local opposition).

Japanese and Korean investors may be aware of many of those risks from their home markets, but less prepared for them overseas. The Japanese and Korean governments have increased their focus on climate risks, and both have committed to net zero emissions by 2050. But that does not mean their investors have the same appreciation for those risks overseas. While many now have seasoned U.S. teams, less experienced Japanese and Korean investors may not appreciate the speed and magnitude of these risks in either the PJM system or even the U.S. more generally.

Japanese and Korean investors should reassess and recalibrate the risks to their investments in PJM gas-fired power. Japanese investors are arguably as prepared as anyone within the PJM system to confront these accelerating risks. Korean investors appear less ready for what’s coming.

Norman Waite

Norman Waite is an IEEFA energy finance analyst who covers renewable energy as IEEFA’s Renewables Champion in Asia. Norman also contributes to analysis and assessment of financial products and policies which aim to promote the energy transition. Early in his IEEFA tenure Norman estimated insurance company AIA’s potential exposure to coal-related investments in late 2020.

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