Energy Markets Update

In this newsletter, we cover the factors you need to know impacting US energy markets, as well as the restart of a large nuclear generation facility, the queue for RTOs around the country, the effects of Hurricane Helene, and a recap of this summer's peak demand data.

Table of Contents

• Gas & Power Update
• A Nuclear Revival? Three Mile Island Restarting after PPA with Microsoft
• Interconnection Backlogs: A New House Bill and Other Sensible Reforms
• Hurricane Helene Devastates Southeast US
• Goodbye, Summer Sun: Recap of Peak Notification Program

Weekly Natural Gas Inventories

Source: EIA

Source: EIA

US Energy Market Update

A summary of recent news in wholesale power and gas markets.

• Gas markets have shown some tepid strength in recent weeks, most notably in the spot and near-term markets. Flows for October 2024 NYMEX gas settled at $2.59 last week. The December - February strip is currently trading hands at $3.50 per MMbtu. 
• Analysts are cautious on any signs of strength in the gas market as the conventional wisdom is that production needs to decline more to bring the market back into balance. There is an industry adage “the best cure for low gas prices is low gas prices” but the disconnect between the low spot prices and higher futures prices has kept most producers in the game for now. 
• Power prices have mostly remained neutral and we are still seeing premiums in the forward market for power that seem arguably “disconnected” from present reality. We still see declines in many of these markets as possible, if not likely, particularly in regions such as PJM. 

• Adding to the fallout related to PJM’s most recent sky high capacity auction (e.g. 10x increase yoy), the PJM Market Monitor last week concluded that significant design flaws in the grid operator’s capacity market cost ratepayers north of $4 billion the latest auction covering the June 25 to May 26 delivery period. These flaws were mostly a function of administrative exclusion of certain “no bid obligation” resources from the market. Separately, a coalition of environmental groups alleged to FERC this week that PJM’s policy not to include just 2 generator assets with Reliability Must Run (RMR) contracts in the forward capacity market supply stack could cost ratepayers over $15 billion over the next 3 years. 
• In a related move last week and seemingly counterproductive move, PJM sought to remove energy efficiency resources from its RPM capacity auction. The request was filed with FERC under docket ER24-2995.
• Industry risk assessors predicted that Hurricane Helene could be as high as $35 billion, another devastating storm, accentuating the growing destructiveness and geographic boundlessness of today’s storms. Meanwhile, heat advisories are still in effect throughout much of California with the state’s capital city Sacramento exceeding 102 degrees yesterday. 
• Brent crude was up 3-5% on the week as the Middle East appears to have crossed the threshold into all out war between Israel, Lebanon, and perhaps imminently, Iran.

A Nuclear Revival? Three Mile Island Restarting after PPA with Microsoft

Nuclear restarts in Michigan and now Pennsylvania are “no brainers”, but where will the industry go from here? 

• Three Mile Island Unit 1, a Pennsylvania nuclear generation facility that ceased operations in 2019, is set to restart in 2028. This resurrection comes as a result of a 20-year Power Purchase Agreement (PPA) between Constellation, the facility owner, and Microsoft, who will be the sole buyer of the energy produced.
• Three Mile Island, infamous for the 1979 partial meltdown at its Unit 2 reactor, is now poised to play a crucial role in leading the resurgence of the technology. The 835 MW generated by the revived Unit 1 will primarily serve data centers that are currently placing heavy demand on the PJM grid, with projections indicating continued growth, especially in the Northern Virginia area.
• The agreement presents pretty clear cut advantages: 
  • Microsoft benefits from access to 24/7 clean energy for their data centers, with new carbon free generation that meets the “additionality” criteria. This will be its largest steel in the ground commitment to sustainability. 
  • The existing transmission infrastructure reduces the need for new construction by leveraging current resources. 
  • The project will be entirely funded by Microsoft and Constellation with minimal ratepayer impacts, far different from proposals by other firms to buy nuclear capacity from existing plants, which will defray costs to other ratepayers. 
  • The restart will create jobs and provide economic benefits to the local community.
  • The reactivation of Three Mile Island Unit 1 could potentially alleviate some of the pressure on capacity prices caused by the growing demand from data centers, but this depends in how the asset is positioned and how much extra capacity it may provide. 
• In related news, the 800 MW Palisades Nuclear Plant, which retired in 2020, is set to re-enter the Michigan resource mix at the end of 2025. This was facilitated by a $1.5 billion loan from the federal government.
• These stories are encouraging but the supply of reactors available for reactivation is small, the only obvious ones are 3 Mile Island, Palisades, and Duane Arnold (615 MW) in Iowa, which closed in 2022. So it is unlikely that nuclear reinstatements will outpace the incentives for building other clean forms of generation, especially in the post-Inflation Reduction Act environment.
• However, there are plenty of sites throughout the country that have undergone initial siting and development, and could repower in the place of old coal plants. 
• The large tech firms have shown a renewed interest in nuclear, even when public opinion drifted elsewhere. This makes sense –there is no other technology that offers the energy density, and 24/7 production that so perfectly  matches the profile of datacenters themselves. The issue with nuclear is financeability, and big tech is invariably in the best position to address this. If they make commitments in the next couple of years, we could have the first series of new reactors in the US in 7+ years. This would truly be a turning point in the energy transition.

Interconnection Backlogs: A New House Bill and Other Sensible Reforms

PJM’s most recent capacity auction was an alarming wake-up call to stakeholders in the region. We need more generation capacity and the current interconnection backlogs, PJM being the worst in the nation, need to be resolved before reliability and cost becomes intolerable. 

Source: Berkeley Lab

• In previous market updates, we’ve covered some of the drivers of this auction’s unprecedented results and the anticipated fallout. The burning question of “what happens now?” still looms.
• To narrow the mismatch between generation supply and demand – which was largely responsible for the auction’s turnout – new power supplies (utility-scale generation assets) need to be facilitated in PJM. Though, the PJM interconnection grid is consistently backlogged with projects waiting to connect to the grid. Many projects entering the queue today are unlikely to come online before 2030.
• Last week, Congress introduced legislation that could help rectify the interconnection backlog being experienced in PJM and across the country. The GRID Power Act would enable RTO’s and ISO’s to propose specific shovel-ready projects to be sent to the front of their respective interconnection queues. If approved, this bill would require the Federal Energy Regulatory Committee (FERC) to review and approve these proposals within 60 days – greatly reducing the traditional timeline for approval that keeps many new projects from gaining momentum.
• The Ohio-based utility company American Electric Power (AEP) has already come out in support of the bill, amid concerns surrounding rapidly growing peak demand levels as more data centers come online (reported on here) and overall grid demand grows.
• This bill is similar to efforts some RTO’s have undertaken to fast-track their projects. In PJM for instance, the grid operator is considering implementing a similar process that would push shovel-ready projects to the forefront with reasonable proof the project would bolster grid reliability (which, let’s face it, PJM needs).
• PJM is also considering a proposal that would transfer “capacity interconnection rights” from retiring power plants to new resources at the same site – though whether this will be implemented remains to be seen.
• Finally, another push by renewable energy stakeholders seeks FERC support for the Surplus Interconnection Service rule, which would allow solar and wind providers to supplement their projects with battery storage on a fast track process. The logic here is that battery storage need not interfere with maximum approved injection rates, it simply moderates and improves the capacity factor of production, which adds values to the grid and need not be bogged down in years of additional study. 
• While the bill is still being deliberated in the House, it raises an important question about how federal regulators and regional grid operators will work together to address grid reliability shortfalls in coming years, as evidenced by the capacity crisis in PJM.

Hurricane Helene Devastates Southeast US

Hurricane Helene made landfall in Florida at 11:10 PM on Thursday, September 27th, as a category 4. Over 2 million residents in the Southeast region of the USA are without power.

Source: S&P

• With 183 dead so far, Hurricane Helene is the most lethal to hit the mainland US since Katrina in 2005, which killed nearly 1400. Assessors think the costs could be as high as $35 billion in economic damages. 
• The morning after Hurricane Helene hit, millions of Americans were left powerless before the storm moved inland and weakened to a tropical storm. Initial reports indicated 1.14 million customers in Florida and over a million more across Georgia (1.1 million), South Carolina (1.4 million), and North Carolina (500,000) were without power.
• Power utilities across the region, including Florida Power and Light and Duke Energy, worked tirelessly to restore electricity. Florida Power and Light managed to restore service to over 460,000 customers, while Duke Energy reinstated power to a third of its customers by the first morning after the storm. These efforts were made possible through  the deployment of drone footage to assess damages and the mobilization of assistance crews from 27 states, pre-positioning nearly 50,000 workers strategically across the region even before Helene made landfall.
• Despite the overnight work, approximately 2 million Americans remained powerless by the start of this week and multiple utilities in the hardest-hit areas will need to completely rebuild, rather than simply repair, electric systems.

Goodbye, Summer Sun: Recap of Peak Demand Notification Program

Veolia works with many of its North American clients to predict and track system peak loads, saving clients money and relieving stress on the electric grid. 

• Most regional grid operators, or Independent System Operators (ISOs), administer capacity markets that support grid infrastructure expansion needed to meet increasing demand. Capacity markets provide fixed payments to generators and ensure sufficient generation capacity to meet reliability requirements. 

Source: FERC

• A customer's capacity cost is influenced by the market rate for capacity and that customer’s load share during peak hours. Below are specifics for each ISO Veolia monitors regarding the calculation of Peak Load Contribution (PLC) tags:
  • PJM: Average usage during the 5 non-weekend, non-holiday peak hours set on different days between June 1st and September 30th. Tags are effective from the subsequent June 1 to May 31.
  • NYISO: Usage during the highest non-weekend, non-holiday peak hour across the NYISO grid. Tags are set in July and August and are effective from the following May 1 to April 30.
  • ISO-NE: Usage during the highest peak hour across the ISO-NE grid, with tags effective from June 1 to May 31.

The table below details the preliminary peak hours for this season as tracked by Veolia:

• In comparing the peak demand data between 2023 and 2024 across various ISO regions, we observe a notable increase in peak load. Specifically, in PJM, the peak demand for 2024 consistently exceeded that of the previous year, with the highest peak reaching 152,554 MW, surpassing 2023's maximum of 147,175 MW, a 3.7% increase. Similarly, ISO-NE and NYISO also experienced increases in peak demand year-over-year equaling +3.3%, and +.84%, respectively. 

The table below summarizes Peak Load Risk Alerts that were sent by Veolia:  

Source: Veolia

• All PLCs, which are bolded in the table, were accurately predicted and notified by Veolia, with the exception of NYISO’s peak day on July 8th. July 9 was forecasted to be significantly hotter but never materialized.  Veolia strives for 100% accuracy with Peak Load Risk Alerts and feedback on the tool from our customers is welcome from our customers. 
• For those not subscribed to our notification service but interested in mitigating capacity charges and improving energy management, please contact commodity@veolia.com.

Market Data

Market data disclaimer: Data provided in the "Market Data" section is for the newsletter recipient only, and should not be shared with outside parties.