A utilities analyst for UBS Investment Research expects that the PJM Interconnection market could see more integrated utilities moving to divest their generation business in the future.
“We anticipate the face of PJM will shift in coming years, as ‘integrated’ utilities, ‘de-integrate’ between their respective generation and transmission/distribution related assets,” UBS Analyst Julien Dumoulin-Smith said in an Aug. 27 assessment.
In particular, the UBS observer believes American Electric Power (NYSE:AEP), Duke Energy (NYSE:DUK), DPL, and PPL (NYSE:PPL) might all move to divest their generation businesses in coming years.
“We anticipate the dynamics in PJM could increasingly resemble the interest compositions present in New England and New York, with wires utilities frequently arguing fervently with generators over policies (leading to less progressive capacity market design among other outcomes),” Dumoulin-Smith said.
“With more wires-oriented interests rising from ‘integrated’ utilities, we anticipate declining clout of the generation community within PJM’s governance construct on voting for policy changes; whereas previously, integrated utilities had been treated as transmission companies (and seemingly voted with generation interests) , this provided added momentum to overall generator interests,” the UBS analyst said.
“While unclear on exactly what policies this will manifest itself, we would expect a generally more critical view of key generator policies,” Dumoulin-Smith said.
The UBS analyst expects transmission investment will remain a primary concern through the decade as policies will continue to favor its investment over generation alternatives. The next wave of transmission funding could be oriented toward achieving state goals such as renewable portfolio standards.
“Secondarily, we continue to view transmission as a necessary offset to expected further generation retirements, as low natural gas, capacity payments, and challenging market design frameworks impede new generation entrants,” Dumoulin-Smith said.
“While we acknowledge waning load growth trends could negatively impact all verticals of sector investment, we see transmission as the most resilient,” the UBS official added.
