Energy Management

How Power Generation Changes Are Impacting Energy Prices in the Mid-Atlantic

3 min read

Coal has long been known as the fuel of choice for power generation. It’s cheap, and widely available. As these facilities are getting old and retiring, natural gas production is on the rise, it’s changing the dynamics of PJM, the regional transmission organization that manages the flow of electricity through much of the Mid-Atlantic region.

Here’s a look at how the power generation landscape is changing and the impact it’s having on supply and energy prices in the Mid-Atlantic.

The Evolution of Power Generation Sources

Historically the market experienced high levels of electricity output from coal-fired power plants, particularly in western PJM, which powers parts of Pennsylvania, Ohio, West Virginia, Kentucky, Indiana and Illinois. As recently as 2005, about 50 percent of the total electricity production in the U.S. came from coal. Since then however, coal-fired power has been on a steady decline.

In addition, it’s been known that shale deposits existed thorough the Appalachians, but it wasn’t until about 2005 when wells drilled in that area showed any commercial promise of natural gas. Today, total shale gas production exceeds 40 billion cubic feet per day and is particularly abundant in the Mid-Atlantic region, as this graph from the Energy Information Administration shows.


Source: EIA

Congestion Issues

From a regional standpoint, coal-fired generation was primarily located in Ohio, West Virginia, up through western Pennsylvania and New York. The power produced at these facilities would flow east to meet the demand along the coast, especially in the summer months. In the past few years, this has caused real-time congestion throughout the eastern PJM footprint, with prices in zones such as Public Service Enterprise Group (PSEG) in New Jersey and Baltimore Gas and Electric (BGE) anywhere from $4 – $6 dollars higher per MWh than West Hub.

The map below shows the PJM territory and the general flow of coal generation from the west to higher demand areas along the coast.


Source: Constellation

What’s Happening Now?

Robust production growth over the past two years and to a lesser extent, mild weather, has pushed the price of gas down to about $2. In addition, pipeline enhancements that tap into the Marcellus shale are taking place, further driving down the price.

In the past few years the takeaway capacity along the Marcellus shale has been expanding and is expected to double capacity in the next year and a half.

Due to abundant supply and low prices, natural gas-fired generation is increasing in eastern PJM relative to western PJM markets. To further add to this, the coal-fired generators east of the line are retiring.In 2016 alone, PJM expects to see capacity increase by 3,545 MW from gas-fired units and a retirement of 337 MW from coal-fired plants. Now, electricity production has shifted east, closer to high demand areas.

This map shows coal unit retirements (black dots) along the western PJM footprint and gas-fired generation built east along the coast (blue dots).


Source: EIA

How Does This Affect You?

The pipeline enhancements are now being realized and generators near them have a competitive edge. Using natural gas gives them better economics than other fuel technologies. Moving the generation closer to the demand source also reduces congestion costs.

Zones like PSEG, PECO and PPL that were seeing premiums over West Hub are now seeing close to none. Some zones have even seen negative congestion as this increase is pushing the generation flow south.

As additional transmission projects come online, we expect to see relief in zones like BGE and PECO and an overall softening of power prices in the coming years.

For more information on how these changes will impact your future energy costs, reach out to your Constellation representative.

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