Location, location, location: How much a 10 GW power gen retirement matters

March 20, 2015 / News & Updates

Tucked in the recently released PJM Market Monitor annual report are a couple of tables showing that there will more than 10 GW of generation retired this year in the PJM footprint.

The conventional wisdom goes that 1 MW of power provides electricity to roughly 1,000 homes. So, if 10 GW are retired, then supposedly an estimated 10 million homes in the PJM footprint are going to be without power.

Well, not really; these are planned retirements, and regulators and the market have known about the retirements for some time.

It’s fair to say that taking 10 GW off the grid could have some sort of impact on forward power prices. However, PJM West on-peak July-August 2015 packages prices have averaged in the low $50s/MWh for the past three months and are even below where they were at this time last year.

Stephen Fernands, founder and president of Customized Energy Solutions, says there are several factors why the forwards prices have shown little reaction ahead of the retirements.

First, he said, many of the power plants being retired have low utilization rates, which could increase capacity costs for the region, but not the energy costs, as the marginal generation units are not significantly impacted.

“For those units that are retiring that are in the 20%-40% capacity utilization range, there is significant competition from units grouped around these price points, again leading to little increase in overall prices from a change in the marginal unit,” he said.

Further, Fernands said natural gas storage levels are much higher than last year and overall gas prices are lower which will lead downward price pressure.

For instance, Texas Eastern M-3 natural gas basis prices for April-October were around negative 95 cents/MMBtu on IntercontinentalExchange Wednesday.

Added to this, load growth is soft, which limits any upside pressure to prices, he said.

But while the PJM West forward prices might see limited movements, prices at the more granular level could see some future volatility.

“I think that there may be locational spikes due to some retirements and outages, but those are typically seen more in the FTR market versus in the traded hubs like PJM’s Western Hub,” Fernands said.

But 10 GW of generation capacity still seemed like a lot, so I went and looked at what this size of retirements could mean for other areas of the world.

PJM’s total generation capacity is roughly 180 GW. Its footprint covers roughly 240,000 square miles, stretching from the Mid-Atlantic region to the midwest over 13 states and the District of Columbia, which represents roughly 61 million of the U.S. population.

In terms of land mass, that puts PJM’s footprint roughly on par with the countries of the Central African Republic or Somalia.

However, the Central African Republic has 44 MW of generation for 4.6 million people, while Somalia has about 80 MW of generation capacity for about 11 million people (data here).
So neither of these two countries could afford to retire any amount of generation capacity.

Germany’s total generation capacity is close to PJM’s at about 178.4 GW, but total land area Germany is smaller, around 135,000 square miles.

Germany also shut down a large chunk of its nuclear generation capacity in recent years, roughly 8 GW of its 20 GW of capacity in 2011. But so far, there have not been any headlines that the lights of Germany have gone out or automobile assembly lines screeched to a halt. (Although in recent years Germany has had a robust debate over its renewables energy policies.)

For other parts of the world, 10 GW of retirements would leave some countries in the dark.

For instance, Hong Kong has roughly 10.7 GW of generation capacity, so a shut- down of this magnitude would pretty much leave its population of 7 million in the dark.

The same goes for Singapore, which has about 10.25 GW of generation capacity on an island that is roughly 270 square miles.

The 10 GW of generation retirements is not something that is taken lightly. For some countries, like the US or Germany, the grid continues to operate, albeit through plenty of preparation, but for others, it could be the difference between having the lights on or being in the dark.

Originally published on The Barrel Blog (Platts) By Eric Wieser | March 19, 2015 12:00 PM