Private Equity Funds Warned Against Investing in PJM Gas Plants Amid Low Returns and Market Uncertainty

Private equity funds with significant investments in PJM Interconnection-area power plants earn less than funds without holdings in the PJM territory, according to a report by the Institute for Energy Economics and Financial Analysis (IEEFA). The report also highlighted low capacity prices, large nonperformance fines, and uncertainty around pending market reforms as factors that make PJM a riskier environment for investors. The report suggests that private equity and the parties that own it, such as pension and retirement funds, have long appreciated energy assets in the power plant. Since 2011, IEEFA found that private Equity has funded over 80% of new natural gas generation capacity built in the territory. However, Dennis Wamsted, an energy analyst at IEEF, believes that private investment funds should be advised against investing in PJm gas plants given the current environment. He also suggested that private investments could lead some funds to retire gas plants earlier than expected, but this may not be a bad thing for the rest of the market.