IEEFA: Private Equity Dominates PJM Power Market and Amplifies Investor Risk

A new Institute for Energy Economics and Financial Analysis (IEEFA) report finds that private equity now controls a dominant share of PJM's fossil fuel generating fleet, exposing pension fund investors to rising financial and reputational risks. Falling capacity prices, market reforms, and bankruptcy restructurings are beginning to erode returns at several major infrastructure funds.

PJM delivers electricity across 13 states and the District of Columbia, including Ohio, Pennsylvania, New Jersey, Maryland, and most of Virginia. According to IEEFA's report, private equity has reshaped the market over the past decade, with three major private generators — ArcLight, LS Power, and Talen Energy — now controlling significant capacity. Three funds with PJM-focused investments — ArcLight Energy Partners V and VI, and Blackstone Capital Partners VII — have recorded performance significantly below peer benchmarks since their inception, affecting state and corporate pension investors.

The financial risks compound with reputational exposure. As concerns about climate change intensify, institutional investors holding fossil fuel assets through private equity face increasing pressure from beneficiaries, regulators, and civil society. Nuveen/TIAA has now been caught twice in PJM bankruptcy restructurings — first with FirstEnergy Solutions, which became Energy Harbor, and most recently with Talen Energy — ending up holding assets beyond its original investment mandate. Commonwealth Bank of Australia's new lending rules, requiring Scope 3 transition plans from clients with more than 15% of revenue from metallurgical coal or gas, illustrate the broader direction of travel.

IEEFA analyst Dennis Wamsted warns that the next several years could bring additional performance problems across PJM-focused funds. While existing limited partners cannot exit current commitments, the analysis recommends that pension funds and other institutional investors account for the new risk environment before making future allocations to PJM-heavy energy infrastructure funds. A third IEEFA report will examine private equity's relative immunity from regulatory oversight and its implications for community planning when plants close without advance notice.

Key figure — Private equity accounts for more than 50% of PJM's annual power-related carbon dioxide emissions.