Capacity outlook
The PJM Interconnection region has 5,768 MW of net new capacity planned to operate in 2020, and solar forms the largest share.
The region, covering all or part of 13 mid-Atlantic and Midwestern states plus the District of Columbia, has about 7,900 MW of new capacity with 2020 as the targeted online year. It also has 2,142 MW of scheduled retirements from a mix of coal, gas and biomass plants, S&P Global Market Intelligence data shows. New solar capacity totals 3,588 MW, and new gas capacity accounts for 2,150 MW.
In 2019, natural gas dominated the new capacity added in PJM, with 3,251 MW installed. Only 76 MW of wind and 306 MW of solar, not including residential solar, also came online.
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Six of the 10 largest solar projects scheduled to begin operating this year are in Virginia and include Sustainable Power Group LLC's 240-MW Pleinmont Solar II (Spotsylvania Solar Energy Center) and 165-MW Highlander Solar Energy Station 1 (Spotsylvania Solar Energy Center), both contracted to corporate buyers.
More than half of the 2,120 MW of wind capacity planned in PJM is in Ohio and Illinois. Two of the largest wind projects are the 300-MW Hardin County Wind Farm in Ohio owned by Invenergy LLC and the 286-MW Alta Farms II Wind Project in De Witt County, Ill., owned by Enel SpA affiliate TradeWind Energy Inc.
The 2,194 MW of new gas capacity planned in Pennsylvania includes the 950-MW Hickory Run Energy Station in Lawrence County, Bechtel Corp.'s 950-MW Renovo Energy Center in Clinton County, and Royal Dutch Shell PLC subsidiary Shell Chemical Appalachia LLC's 250-MW cogeneration plant in Beaver County.
Most capacity to be retired is fueled by coal, totaling more than 1,800 MW. The last remaining unit at the Conesville plant in Coshocton County, Ohio, the 780-MW unit 4 majority-owned by American Electric Power Co. Inc., will be shut due to market conditions. Two other units were shut in 2019. FirstEnergy Solutions Corp., which is working to emerge from bankruptcy protection, also plans to shut 720 MW at the 2,210-MW W.H. Sammis plant in Jefferson County, Ohio, though after subsidy legislation was passed in Ohio in 2019, it rescinded plans to deactivate more capacity at the Sammis plant.
New capacity being developed and built in PJM faces market uncertainty as the grid operator revises its rules to comply with a Dec. 19, 2019, order from the Federal Energy Regulatory Commission addressing state subsidies. The order requires PJM to expand its minimum offer price rule to apply to resources such as new renewables that receive state subsidies. While the order allows for exemptions, requiring resources to bid at a minimum price could make it harder for new, subsidized renewables to compete and clear PJM's capacity auction, which selects resources based on the most economic bid.
Supply-demand analysis
Over the last six years, available capacity in PJM grew by 14,046 MW while peak demand grew by 9,272 MW, based on an analysis of independent system operator data. Installed capacity in PJM in 2019 reached 217,101 MW, 43.8% more than the summer peak load that year. The supply-demand ratio in 2019 was flat to 2014, when the ratio was 43.3%. The ratio is calculated by taking the difference in unadjusted total operating capacity per year and peak load reported by the ISO and dividing that difference by the same peak load. The figure is not meant to reflect the industry metric of operating reserve margins.
Forward gas contracts for delivery in 2020 stay below $2/MMBtu for most months except in the December delivery period, when prices reach $2.196/MMBtu, according to full value monthly prices at the Leidy Hub from OTC Global Holdings. Forward contracts for 2019 delivery averaged $2.583/MMBtu, based on prices as of Jan. 14, 2019. Power contracts for delivery in 2020 average range from the low $20s/MWh to the mid-$30s/MWh across the PJM Eastern, PJM Western and AEP-Dayton Hubs.
Commodities outlook
Compared to 2019 levels, spark spreads average higher at the AEP-Dayton hub as well due to lower gas prices year over year. The average spark spread based on 2020 forward contracts is $13.00/MWh, up from $11.13/MWh in 2019.
Spark spreads, which serve as a measure of gas plant profitability and reflect the difference between gas and power prices, are generally higher in the Eastern hub compared to 2019 levels because of higher forward power prices compared to the previous year's figures. The spreads peak in July at $14.70/MWh, lower than in July 2019, when spark spreads peaked at $18.22/MWh. The average spark spread based on 2020 forward power contracts, however, is $10.62/MWh, up from $8.29/MWh in 2019.
At the PJM Western hub, covering western Pennsylvania, forward spark spreads average $9.76/MWh, just 20 cents shy of 2019's average.
