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