Coal-Fired Power Plant Retirements on PJM Grid Could Lead to Higher Wholesale Energy & Electric Futures Prices

There has been a great deal of news about the retirement of U.S. coal-fired power plants, a function of pending environmental compliance regulations that become effective April, 2015 (Mercury and Toxics Standards rule). Power companies are retiring the plants, citing that the costs of making the plants environmentally compliant are not justified. Power plant retirements are affecting the PJM grid.

Consequently, anticipated is an increased reliance on natural gas-fired generation to maintain electric supply reliability.

The polar vortex in January 2014 provided a glimpse into some of the issues tied to increased reliance on natural gas-fired generation. In fact, both wholesale power prices and electricity futures prices have been affected, with wholesale power prices skyrocketing, and with electricity futures price action becoming disassociated with traditional price influencers.

The video below (by Brad Foster) explains these interesting dynamics.

Coal-Fired Power Plant Retirements on PJM and Potential Price Impacts

The video references a study by the Brattle Group. This blog includes a link to this study, providing a more in depth analysis of the potential cost consequences of coal-fired electric generation on wholesale electricity prices.

The link:

Coal Plant Retirements Likely to Alter Future Power Prices According to Study by Brattle Economists (A download of the entire study is located at the bottom of Brattle web page)