While PJM Interconnection is facing a huge wave of coal-fired plant retirements, new developments like a capacity market and demand response mean that so far PJM is exceeding its reserve margin targets, said PJM official Paul Sotkiewicz.
He was speaking Nov. 13 during a panel at the annual PennWell Power-Gen International conference in Orlando, Fla. Sotkiewicz, the Chief Economist, Markets for PJM, said a big advantage for PJM is that the massive Marcellus Shale gas fracking field is within its service territory, meaning a plentiful supply of cheap natural gas for generators.
He said that right now, at least 11,000 MW of coal-fired capacity in PJM is facing certain retirement due to new air regulations and cheap natural gas, and another 14,000 MW of coal capacity is at risk. “Coal is being displaced by gas,” he noted. “Times they are a changin’.”
He asked rhetorically about how PJM has been able to successfully handle this change: “Now, how have we done with that? Pretty good.”
Factors like capacity auctions and demand response, which can cut loads at times of peak demand, have allowed PJM to achieve capacity margins of about 20%, well above its target of about 15%. He noted that the next capacity auction is in May 2014, and with the delivery period in that auction being within the Mercury and Air Toxics Standards (MATS) deadline period of 2015-2017, there may be more coal retirements announced for any coal capacity that doesn’t compete well in that auction at a time when that capacity needs costly environmental retrofits to survive.
On the same panel at the conference was Ken Ditzel, a principal at Charles River Associates, which has done work lately on natural gas supply and price issues. For one thing, Ditzel noted that a U.S. Energy Information Administration forecast is for gas prices to remain below $5.50/mmBtu through 2030. He said that is a bit optimistic, with the Charles River Associates base case forecast at $6.30/mmBtu through 2030, with prices as high as $9/mmBtu in some high gas demand scenarios.
Ditzel noted that besides the power generation market, there is also a lot of growth in gas demand expected for industrial facilities, for natural gas-powered vehicles and for export through liquefied natural gas facilities. But, even with that other demand: “Gas is here to stay,” he said. “We’re going to see a lot of gas switching.”
Ditzel said gas has issues, like reliability of supply. He and other panelists noted how the Federal Energy Regulatory Commission and ISOs around the country, particularly in increasingly gas-dependent New England, are looking into gas-electric coordination issues. That is particularly a critical issue in the winter, when gas demand is high for home heating.