The glut of cheap natural gas from a single shale basin that straddles the Northeast, mid-Atlantic and Midwest has sparked a construction boom of power plants. Dozens have been built in the past two years alone.
There's just one problem: There isn't nearly enough electricity demand to support all the new capacity. And as wholesale electricity prices plunge, industry experts are anticipating a fire sale of scores of plants in the region. Many, in fact, have already been sold along the PJM Interconnection LLC grid, the nation's largest, encompassing 13 states from Virginia to Illinois.
"Everything in fossil fuels is for sale," said Ted Brandt, chief executive officer at Marathon Capital LLC, a mergers-and-acquisitions adviser in Chicago.
Drawing from abundant, cheap and nearby natural gas in the country's most prolific shale field, the new plants are adding a large amount of power generation -- more than 20 gigawatts -- to a region that arguably has more than it needs.
The new gas-fired plants are also going online at a time of market turmoil, buffeted by Obama administration efficiency policies that have helped tamp down demand and by the Trump administration's determination to keep old coal-fired plants going.
Spot wholesale prices at PJM's benchmark Western hub slumped to an average of $28.79 per megawatt-hour last year, falling by more than half since 2008 as the shale boom took hold. Many players are exiting the market.
"It's a gas-driven apocalypse in the power market," said Toby Shea, a New York-based analyst at Moody's Investors Service.
As prices slip, some see a buying opportunity. Blackstone Group LP and ArcLight Capital Partners LLC bought four Midwest plants from American Electric for $2.17 billion in September. That implies an average sale price of $417 a kilowatt, a fraction of the $1,000 a kilowatt cost to build a new gas plant.
"It suddenly becomes a buyer's market if the summer disappoints," said Paul Pace, who heads KeyCorp's energy lending team.
Some of the country's smartest investors, including Blackstone, are buying the facilities at discounts, betting that a few hot or cold days each year will yield enough money to justify keeping them operating.
Advances in efficiency and reduced demand for electricity are converging with the gas glut to further depress the industry. Everything from the advent of LED light bulbs to Energy Star-certified refrigerators and appliances prompted PJM to cut its long-term growth forecasts to just 0.2 percent a year from 1 percent in 2014. Add in wind and solar power, which are providing ever more energy to the grid, and the demand for new power plants looks even shakier.
Information for this article was contributed by Christine Buurma of Bloomberg News.
Business on 05/25/2017