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Report PJM Energy Investment Trends Homer City Generating Natural Gas Offshore Wind Renewables Transition

Private equity's losing bet on PJM coal plants

June 02, 2022

Dennis Wamsted and Seth Feaster and David Schlissel

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Key Findings

This is shaping up to be an extraordinarily difficult year for the private equity firms operating in the PJM power market—especially those that own some of the region’s aging coal-fired power plants.

One key financial support, the price PJM pays for capacity (essentially a payment that power plants receive for promising to be available when needed), will drop from $140 per megawatt-day to just $50 this month for the 2022-23 delivery year. This will reduce revenues for generators across the board, but it is particularly troublesome for the region’s coal plants, which are struggling to remain competitive in the day-to-day energy market as well.

Executive Summary

The degree of financial distress is already evident, even before the looming drop in capacity payments. For example:

Talen, which owns four coal-fired power plants in PJM and has stakes in two others, filed for bankruptcy in May. Riverstone, a major private equity (PE) firm, took Talen private in 2016.
Lightstone, the firm backed by private equity firms ArcLight and Blackstone that owns the two-unit, 2,680-megawatt (MW) Gavin coal plant in Ohio, has approached its lenders about extending the repayment date of its $1.7 billion loan by three years.
The owners of Homer City, a three-unit, 1,888MW coal-fired facility in Pennsylvania, which has already gone through bankruptcy twice, said earlier this year they might have to close one or more of the plant’s boilers. They have since backtracked, but the plant’s capacity factor has averaged less than 30% since the current owners took control in 2017—a clear indication of its relative uncompetitiveness.
In March, Atlantic City Electric received New Jersey regulatory approval to buy out the contracts of two private equity-owned coal-fired cogeneration plants, a deal that will close the last two coal plants in the state at the end of May and save ratepayers millions of dollars, according to the utility.

The problems are particularly noteworthy given the recent runup in natural gas prices. Coal generation across PJM through the first four months of 2022 is lower than the 2021 figure, even though overall demand in the region is up, another indication of the sector’s growing economic difficulties.

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Dennis Wamsted

At IEEFA, Dennis Wamsted focuses on the ongoing transition away from fossil fuels to green generation resources, focusing particularly on the electric power sector.

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Seth Feaster

Seth Feaster is an energy data analyst whose work focuses on the coal industry and the U.S. power sector.

Before joining IEEFA, he created visual presentations at the New York Times for 25 years with a focus on complex financial and energy data; he also worked at The Federal Reserve Bank of New York.

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David Schlissel

David Schlissel has over 30 years of experience as a regulatory attorney and consultant on energy and utility issues. He has testified as an expert witness before regulatory commissions in more than 35 states and before the U.S. Federal Energy Regulatory Commission and the Nuclear Regulatory Commission.

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