We have a Golf GTI. Rabbit Edition, Cornflower blue, beautiful if you are into hot hatches. It is seven years old now and the costs are creeping up, so we have thought about replacing it. The replacement math is tight and “future options” might be the difference: the Golf will never have Full Self Driving. It all reminds me of the gas plant math we have been doing.
If you are going new, CCGT costs cluster near $2,000/kW for the post-2027 cohort against roughly $900/kW before 2023. In ERCOT a 1 GW plant at a 6.5 heat rate and 75% utilization cannot be financed above $1,500/kW on conventional terms, so it takes a PPA near $70/MWh to break ground. PJM needs roughly $500/MW-day of capacity, or a 15-year bilateral at the cap. Numbers will vary, but the band is narrow and knowable.
The market to buy is hot. Operating gas M&A doubled from about $0.5 million/MW before 2025 to roughly $1.0 million/MW last year, and against a $2.0 to $2.3 million replacement cost that is fifty cents on the dollar. Expanding at an already-interconnected site lands at $1.3 to $1.6 million/MW. The cheapest megawatt in the market is one that already exists.
Long Ridge showed what that megawatt is worth. MARA’s purchase included the well pads as well as the operating asset and implies a $52/MWh contract. Priced off an $80/MWh behind-the-meter PPA instead, a $15/MWh uplift to LMP and in line with comparable deals, we value the Hannibal plant at $3.76 million/MW against $2.53 million merchant. Capturing the contract means a ~50% uplift for the same turbines, at the same node, burning the same gas.
Not every plant has the same options. When Talen paid $1.33 million/MW blended for three gas plants in January we marked Waterford at $2.22 million/MW and Darby at $0.34 million. Waterford earned that on merit, a 7.0 heat rate running 88% of the year, and the same efficiency is what makes it worth contracting. Darby runs 8% of the year on a 12.4 heat rate, so it is cheap today with no option to contract. Across the fleet, the plant with the best heat rate carries both the highest value per megawatt and the largest PPA upside, roughly 16% of NAV at $60/MWh.
Old or new, the upside sits in PPAs struck above merchant. I would pay for the plant and chase the option, which means the work is finding the plants that carry one. Pick the right heat rate at the right node. Get past a market monitor that already killed Talen’s Susquehanna colocation and wants Long Ridge’s capacity kept in PJM. Sign the contract. Or watch somebody else do it.
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