Neel Somani on Homer City’s Comeback: How a Retired Coal Plant Could Power the AI Boom

When the Homer City Generating Station in Pennsylvania shut down in 2023, it looked like a familiar story: another coal plant pushed out by cheap natural gas.

Three years later, the site has become one of the most ambitious power developments in the country: a planned 4.4-gigawatt natural gas facility designed to support a major data center campus.

Neel Somani, a former quantitative researcher who covered power and gas markets at a major hedge fund, uses Homer City as a case study in Power 2026, his primer on electricity pricing available at power2026.ai.

The project captures several of the changes reshaping US power markets, from shifting generation economics to the race for new data center capacity.

How Homer City Became Too Expensive to Run

Homer City’s decline becomes easier to understand once you look at how power markets determine which generators run.

The plant operated in PJM, the largest organized power market in the country. Its three coal units could supply roughly 2 gigawatts, but they operated at a heat rate of around 10. That meant the plant required about ten million British thermal units of fuel to produce one megawatt-hour of electricity.

The natural gas plants competing against it operated more efficiently, with heat rates closer to 6 or 7.

Market design ultimately determined the outcome. Grid operators dispatch generators based on cost, using the cheapest available resources first and moving up the cost curve as demand increases.

As natural gas remained inexpensive and more efficient plants entered the market, Homer City’s coal units ran less frequently.

A plant that rarely operates cannot cover its fixed costs, and in 2023 the owners shut it down. Somani’s explanation removes the politics from the story: Homer City failed because the market found a cheaper way to produce electricity. That said, subsidies and carbon taxes can impact the price at which a plant is able to produce power.

From Retired Coal Plant to 4.4-Gigawatt AI Power Project

The redevelopment planned for the site is notable for its size. The project calls for 4.4 gigawatts of natural gas generation at an estimated construction cost of roughly $10 billion.

For comparison, Somani notes that a nuclear plant is considered large at about 1 gigawatt. The new Homer City units are expected to operate at a heat rate of approximately 6, putting them among the most efficient gas generators on the grid.

That makes the project a striking reversal. A site that once became uneconomic because of inefficiency is now being positioned around efficiency.

The redevelopment also includes many of the elements Somani identifies as necessary for major power projects.

Fuel supply is addressed through a publicly announced partnership with EQT Corporation, the natural gas producer.

Permitting has largely moved forward, with the Pennsylvania Department of Environmental Protection approving the project’s critical air quality permit in November 2025, along with the required waterway permit.

Construction is also underway, with reports indicating that around 1,000 workers are on site.

Why Billion-Dollar Infrastructure Deals Often Stay Private

One detail Somani highlights is the project’s decision not to publicly identify its anchor tenants.

In data center development, the anchor tenant, typically a hyperscaler or AI lab that commits to purchasing power over many years, is what helps make large-scale financing possible. Lenders want predictable contracted revenue before committing to projects that cost billions of dollars.

So why keep those agreements private?

Somani points to the strategic considerations. If financing negotiations are ongoing, publicly naming tenants could reduce the developer’s leverage.

If permitting or construction issues arise, a public customer announcement could create unwanted attention for the tenant.

Even after agreements are finalized, major counterparties often prefer to control their own announcements.

The decision is less about secrecy and more about timing. Managing when information becomes public can protect negotiations and preserve relationships with key partners.

The Risks Behind a Record-Scale Power Redevelopment

Somani’s view of Homer City is positive, but he doesn’t treat the project as guaranteed.

The planned efficiency improvements, fuel partnership, and permitting progress give the project many of the ingredients needed for success. Refinancing after construction could also improve the economics, since operating assets typically receive more favorable financing terms than projects still under construction.

The biggest risk is execution.

Large power projects are facing an increasingly difficult procurement environment. Turbine manufacturers are dealing with backlogs that stretch from months into years, forcing developers to find alternatives such as repurposed jet turbines and imported components.

At this scale, delays can quickly become expensive. When billions of dollars are invested upfront, construction timelines and equipment availability matter just as much as the original project design.

Why Retired Power Sites Are Becoming Strategic Assets

Homer City points to a larger trend in how new power capacity may be built.

Redeveloping retired power plant sites offers advantages that new developments often spend years securing: existing grid connections, transmission infrastructure, water access, industrial zoning, and communities familiar with large-scale energy projects.

As AI-driven electricity demand grows and new projects face lengthy interconnection and permitting processes, retired coal plant sites may become increasingly valuable assets.

The project also reflects a challenge Somani discusses throughout Power 2026. AI companies need electricity quickly, but short-term demand alone does not finance long-term infrastructure. Building gigawatt-scale generation requires contracts that provide predictable revenue over many years.

Pairing efficient new generation directly with a data center campus, through a behind-the-meter model, offers one way to connect long-term supply with long-term demand.

Lessons for the Next Generation of Energy Projects

Homer City highlights several practical considerations for investors and operators.

Efficiency remains critical in commodity markets. The heat rate that contributed to the old plant’s decline is the same factor that makes the new project attractive.

Existing infrastructure also carries value that may not appear on a spreadsheet. Fuel supply, permits, financing, and customers must all work together, and a weakness in any one area can affect the entire project.

The project also shows that communication strategy is part of deal strategy. When and how information is disclosed can influence negotiations and partnerships.

Power 2026 gives readers a way to evaluate projects like Homer City based on underlying economics rather than the surrounding political debate.

At first glance, Homer City is a story about coal declining and natural gas replacing it. Look more closely, and it becomes a story about how power markets work, how infrastructure is rebuilt, and the discipline required to develop the next generation of energy assets.