The sale of four natural gas units by Constellation to LS Power for roughly $5 billion is not cheap by any description, but it does imply that the market for existing fossil fuel units in PJM may be peaking.
Constellation is selling the units across Pennsylvania and Delaware as part of a regulator-ordered divestiture ahead of closing its merger with Calpine. The Constellation-Calpine $26.6 billion integration was one of two recent high-water marks for natural gas generation transactions in the ISO, with Blackstone’s $1.2 billion commitment to a pre-construction unit in West Virginia.
In both cases, the high per-megawatt price paid represented a bid on the soaring market for PJM capacity, and more specifically a view that new construction to meet that capacity demand would become increasingly difficult.
The four units in the new LS Power deal are old for natural gas generation, averaging more than 14 years since commissioning (or in the case of Edge Moor in Pennsylvania, refiring with gas in 2010 to replace a 1954 coal unit). This means LS will almost certainly have to invest more in the units to keep them running, but the generation economics in the deal still indicate that values for accreditation-rich generation may be peaking.
The Wolf Creek deal in November 2025 assessed each 100MW of planned generation at $200 million of equity value. The same deal economics applied to the Constellation sale would have garnered a price closer to $9 billion than $5 billion, implying that LS Power has plenty of headroom to make capital improvements before they match the Blackstone Wolf Creek price for new capacity.
Capacity prices, largely settled via an auction structure in PJM, are set to coast at regulator-imposed caps through the next few years, Noreva models imply.
One of the most significant downside risks to that forecast is from demand destruction if data center construction slows, which recent Noreva data shows resulted in significant capacity deflation across the forward curve in the volatile California resource adequacy market.
The other major risk for capacity market participants in PJM comes from a related, but even more inscrutable, regulatory and political process surrounding energy affordability.
Proposals to allow state-by-state vertical reintegration and a shift back toward rate basing and away from competitive markets in PJM have become widespread, and this would further alter the valuation economics of assets like the four units in the Constellation-LS Power deal.
Deployable natural gas plants remain a very scarce asset type in PJM, so a premium to fundamentals-indicated valuations is likely to persist even if capacity price forecasts retreat. Nonetheless, a new, more sober approach to valuations that reflects operational, regulatory and market risk is a healthy development for the ISO. Lower barriers to entry can tempt new investment, and steadying valuations make power generation less of a target for anxious regulators.
