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Power Plants Bloom Even as Electricity Prices Wilt

A glut of gas flowing out of U.S. shale fields is fueling a power plant construction boom in several northeastern states, despite fierce competition.


Erin Ailworth

A glut of gas from U.S. shale fields is fueling a power-plant construction boom in several Northeastern states, despite fierce competition that has caused wholesale electricity prices to plummet.

The key for electricity producers is location. Having access to transmission lines to move megawatts to market is vital; but in addition by building close to natural-gas reserves, power producers can more easily access cheap fuel supplies.

In Pennsylvania and Ohio, which sit above the prolific Marcellus Shale formation, companies including Invenergy LLC and Calpine Corp.  are building gas-fired power plants capable of generating a combined 8.6 gigawatts when they come online between now and 2020, according to federal data. That output, which is enough to power up to 8.6 million homes, would require about 1.5 billion cubic feet of gas a day—roughly the equivalent of the daily flow through a major pipeline.

The build-out comes as American shale drillers continue pumping so much gas that the price of the fuel has plunged from highs of over $13 per million British thermal units in 2008 to less than $3 per million BTUs today.

“The economics are compelling for gas-fired power,” said Andrew Slaughter, head of the Deloitte Center for Energy Solutions.

The power is bound for PJM Interconnection LLC, a power grid that serves some or all of 13 states, including Illinois, Michigan and New Jersey as well as Ohio and Pennsylvania. Competition among wholesale power producers in the market served by PJM—which stands for Pennsylvania, Jersey, Maryland—has become so fierce that a megawatt hour traded for $29.23 last year, the lowest level since 1999, as far back as the grid’s independent market monitor tracks prices.

Though electricity demand remains stagnant overall, the closing of aging coal plants across the U.S. has left some regions in need of new generating capacity. The PJM grid sits at the top of the list. Nearly 9.3 gigawatts of coal-fired electric generation have been retired in the past three years on the grid, while 8.7 gigawatts of gas-fired capacity have been added in that period. An additional 12.5 gigawatts of gas-fired generation is currently under construction and expected online through 2020.

Power producers like Caithness Energy LLC, based in New York, say the new plants make sense—despite the heightened competition—because technological advances have made new gas plants more efficient.

One plant that Caithness is building in northeast Pennsylvania for about $1 billion will be capable of generating more than one gigawatt of electricity. Expected to come online in May 2018, it will be supplied with gas pumped by Cabot Oil & Gas Corp., whose Marcellus drilling operations are concentrated in the same area. 

“We can buy the gas at a reasonable price because the [gas] producers are avoiding transportation costs they otherwise would incur to move it further,” said Ross Ain, executive vice president for Caithness.

The cheap supplies of gas coming out of shale fields were also a draw for Calpine, which expects next year to bring on a new facility in Pennsylvania capable of generating more than 800 megawatts.

“We recognize that the abundance of domestic shale natural gas is expected to keep prices low for the foreseeable future,” the company said in a statement. “We are well positioned to take advantage of that trend.”

Building gas pipelines to transport fuel from places like Pennsylvania to other regions can be difficult, and Marcellus gas producers say the new power plants provide an alternative market.

Invenergy declined to comment on its project in the region.

Dynegy Inc. Chief Executive Robert Flexon  said the company has added more than 800 megawatts of new gas-fired generation to its portfolio over the past several years by upgrading facilities that feed PJM and the New England market.

He called the new resources “the cheapest megawatts you can find,” saying his company recently has been able to purchase gas for under $1 per million BTUs on numerous occasions.

Older coal and nuclear power plants have been the biggest losers in the competition among power producers, including increased supply from wind. Roughly three-fourths of the electric-generating capacity retired on the PJM grid since 2015 came from coal-fired units, according to federal data.

Some older natural gas plants are also feeling the squeeze from newer combined-cycle gas plants, which use a gas and a steam turbine together to produce more electricity. In PJM, a sixth of the capacity retired since 2015 came from natural gas, according to federal data.

In addition to the 8.6 gigawatts of natural-gas electricity already under construction in Pennsylvania and Ohio, companies have proposed an additional 8.2 gigawatts in those states plus West Virginia, according to federal data. But some companies say the market is now close to being oversupplied and they expect the boom to taper off, with some of the planned plant projects likely falling by the wayside.

Tenaska Inc., a private Omaha-based energy company, said it has shifted focus to renewable energy projects, mainly wind power, after participating in the natural-gas plant build-out. The firm began building a 925-megawatt gas-fired plant in Pennsylvania in 2016 to take advantage of the cheap gas supplies in the region, and expects the more-than-$500 million facility to come online late next year.

“There were a lot of other developers,” said Brad Heisey, a senior vice president of strategic development and acquisitions at Tenaska. “At some point there is only room for so many.”