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U.S. EPA’s Proposed Climate Rule to Hit Hardest in Nation’s Largest Power Market


By Jonathan Crawford  |  August 15, 2023

This is the fifth and final Insight in a series covering the U.S. EPA’s historic carbon emissions standards being proposed for the power sector.

The U.S. EPA’s proposed carbon standards for the power sector – arguably the most far-reaching and stringent regulation to be imposed on the industry if enacted – raises the prospect of a fundamental reshaping of the nation’s electric generating fleet. While the agency itself expects these new pollution caps will force vast amounts of mostly older and less-efficient coal and natural gas plants to shutter rather than deploy costly and complex pollution control technologies, perhaps nowhere will the capacity retirements fall hardest than in PJM Interconnection, home to the nation’s largest wholesale power market.

Coming on the heels of a stretch of massive plant retirements, and facing another 22,000 MW of scheduled retirements by the end of the decade, incremental facility closures modeled by the EPA to occur from the climate rule threaten to exacerbate the thinning of PJM’s fleet of dispatchable capacity. In this Energy Market Insight, we analyze how added retirements from the EPA’s climate plan could further raise the risk of a capacity shortfall in 2030 should PJM fail to add sufficient amounts of replacement capacity.

The Proposed Standards and PJM’s Fleet

The U.S. EPA’s proposed carbon emissions standards for new and existing natural gas- and coal-fired plants can be met with one of multiple advanced technologies, including carbon capture and sequestration, or for gas plants alone, co-firing low-carbon hydrogen. However, amortizing the expense of these costly pollution controls can take a decade or longer. Consequently, many older and less efficient plants will likely seek to avoid the risk of financial losses from such investments and opt to retire instead.

The EPA projects that by the turn of the decade, when compliance requirements start to kick in, cumulative retirements of natural gas- and coal-fired generating capacity – whether from the climate plan, market headwinds, or old age – will reach over 52,000 MW across the major power markets. But, as the map illustrates below, the closures will not be evenly dispersed, with retirements most concentrated in PJM wherein the EPA models about 20,700 MW of capacity going offline by the end of the decade, including some scheduled retirements. That amount of retiring capacity is equal to 14% of PJM’s current gas and coal fleet and would make PJM the market with the largest amount of plant retirements. By 2035, another 10,000 MW are projected to retire in PJM according to the EPA. By contrast, gas-heavy markets, like ISO New England and CAISO, are expected to post far fewer retirements, and in the case of New York ISO, none at all.


The large number of retirements follows from the fact that most of PJM’s fleet is advanced in age. Currently, about 20,000 MW of coal capacity, or nearly half of PJM’s coal fleet, has reached or surpassed the typical age of retirement: about 50 years according to BTU Analytics’ data. The large amount of coal capacity itself also makes PJM primed for large amounts of closures. As the most carbon-intensive generator type, coal plants face the steepest compliance costs. With just over 40,000 MW of coal capacity, PJM is second only to MISO in the amount of coal facilities within its footprint.

The number of plants projected by the EPA to retire is substantial. However, as shown below, the estimated capacity retirements grow even more material when adding the capacity of plants with announced retirement dates unaccounted for in the agency’s estimates, as well as facilities that are at or near the typical age of retirement. Combining this capacity together brings over 62,000 MW of capacity that is either scheduled to close, modeled to close, or at risk of closure due to old age, by 2030. The loss in available generating capacity would be further compounded by existing facilities that experience a derate in capacity from the installation of pollution control technologies.


The projected retirements are all the more notable given the large amount of capacity that has recently ceased operations in PJM. Since 2018, over 20,800 MW of coal capacity and about 4,200 MW of natural gas capacity has shuttered according to BTU Analytics’ data, more than any other regional grid.

Don’t Forget Power Demand…

A backdrop of elevated demand from high energy-consuming data centers, electric vehicles, and building electrification lends more urgency for PJM to replace the retiring capacity. In 2030, under a baseline scenario, peak power demand is forecast by the grid operator to grow by over 8,800 MW to about 157,900 MW. Under extreme heat, PJM projects that demand could jump to as much as 170,000 MW. The prospect of higher peak power demand and lower installed capacity leaves PJM at risk of shrinking capacity reserves, which are critical for protecting the grid from supply shortages when electricity consumption is highest. To maintain grid reliability, PJM has historically been subject to maintaining a buffer of extra capacity reserves, known as an installed reserve margin, of between 14% and 16% in excess of forecast peak load.

Notably, the EPA’s draft rule calls for accounting for the reliability risks stemming from plant closures, and the agency recognizes that, in some cases, facilities that would otherwise retire may need to stay in operation until longer-term mitigation measures can be put in place.

With a backlogged queue dominated by renewable projects, PJM would likely face an uphill battle in replacing lost firm, dispatchable generating capacity. As illustrated below, BTU Analytics is currently tracking renewable and gas-fired projects through 2030 totaling nearly 45,000 MW. The lower-risked projects are in mid-development (BTU Grade 3), advanced construction (BTU Grade 4), or under construction (BTU Grade 5).


The impacts from the EPA’s proposed climate rule, which is expected to face stiff legal challenges, are immensely disparate from one wholesale power market to another. Given its older and coal-heavy fleet, retirements due to the carbon standards are expected to fall most heavily on PJM, where, by 2030, 40% of all closures are modeled by the EPA to occur. PJM has already weathered an extensive number of retirements, so the additional closures by 2030 would only worsen the grid operator’s reserve margins. Ultimately, PJM’s lagging pace of adding firm dispatchable capacity and the grid’s growing energy demand is setting the stage for potential reliability risks.


BTU Analytics is a FactSet Company. This article was originally published on the BTU Analytics website.

This blog post is for informational purposes only. The information contained in this blog post is not legal, tax, or investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.


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The information contained in this article is not investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.