Private Equity Coal and Gas Holdings Raise New Risks for Pension Investors

Pension funds and institutional investors holding stakes in private equity firms with fossil fuel assets in PJM, the United States' largest power market, face lower returns and escalating financial risks. Private capital now controls roughly 60% of fossil fuel-fired generation capacity in PJM across 13 states, largely free from public regulatory scrutiny.

Private equity firms have transformed the PJM power market over the past decade, building 28,815 megawatts of the 35,515 megawatts of combined-cycle gas capacity added since 2011. Today the three largest PJM generators are private: ArcLight with 14,230 MW, LS Power with 10,803 MW, and Talen Energy, now controlled by Nuveen/TIAA and Rubric Capital, with 10,370 MW. The sector's limited partners — pension and retirement funds — now face mounting risks from falling capacity prices, market reform efforts, and significant fines for poor plant performance in December 2022.

The accumulation of private capital in PJM carries structural consequences beyond financial underperformance. Unlike regulated utilities or publicly listed independent power producers, private firms are not required to file regular financial disclosures with the Securities and Exchange Commission. This opacity shields them from regulatory accountability and public pressure on decarbonisation, while private equity already accounts for more than 50% of PJM's annual power-related carbon dioxide emissions. The Institute for Energy Economics and Financial Analysis (IEEFA) notes this creates serious barriers to regional emissions reduction efforts.

The outlook for limited partners — especially state and corporate pension funds — is likely to deteriorate as PJM market reforms take effect. Performance at ArcLight Energy Partners V and VI, and Blackstone Capital Partners VII, has already lagged peer benchmarks since inception. Additionally, bankruptcy restructurings, such as Talen Energy's recent reorganisation, have left Nuveen/TIAA holding assets it may not have sought. IEEFA's ongoing three-part analysis recommends that new commitments to PJM-focused funds account for these compounding risks before capital is deployed.

Key figure — Private capital owns approximately 60% of fossil fuel-fired generation capacity in PJM's 13-state power market.