When PFR asked financiers and sponsors backing gas-fired projects in PJM Interconnection how President Donald Trump’s executive order to dismantle his predecessor’s Clean Power Plan might affect development in the region, conversation quickly turned to other topics.
In theory, the measures in the Energy Independence Executive Order signed by the president on March 28 could allow coal-fired plants that would have retired under the full force of Barack Obama’s flagship climate change policy to operate for longer, weakening the economic case for further greenfield gas-fired development.
But bankers and developers think the impact will be minimal. “I think the 20 GW that closed in PJM under Obama are all that were going to close,” says a financial adviser, adding that maybe a couple more coal-fired plants might have closed under Hillary Clinton.
“The economics are the issue with coal plants,” says a v.p. at a gas-fired project sponsor. “With gas prices at this level for the foreseeable future, I don’t think you need to get the CPP to shut them down. It’s just, how long can you keep these facilities open and losing money?”
However, while dismissive of the executive order, gas-fired deal watchers are less complacent about the risk of overbuild more generally.
“Is there a risk of overbuild? Absolutely, but you can’t pin it on any one factor like the coal plants,” says the financial adviser. “I think your gas price assumption is a lot more critical than whether a coal plant closes or not.”
Now that Competitive Power Ventures and its co-sponsors have sealed debt financing for their Fairview combined-cycle project in Pennsylvania, some deal watchers are predicting a lull as market participants await the results of PJM’s annual base residual auction (PFR, 3/29).
“The auction is intended to be a signal that the market needs more capacity or it doesn’t,” says a project finance banker. “Last year the price softened more than expected.”
The clearing prices in the 2019/2020 base residual auction that took place last May ranged from $80/MW-day for base generation in some regions to $202.77/MW-day for capacity performance resources in PJM’s Comed zone.
“If we see another price that is below $100, that would be noteworthy, but again not something to panic over,” says the project finance banker.
The auction window for 2020/21 capacity is scheduled to open on May 10 and close on May 16, with results due to be posted on May 23.