Energy Markets Update

In this newsletter, we cover key factors impacting US energy markets.  We report on the hot topic of tariffs and their effects on U.S. consumers, as well as recent policy impacting clean tech. We highlight the promising outlook for battery storage in 2025, and Apple's recent class action lawsuit over a claim of carbon neutrality. 

Table of Contents

• Energy Market Update
• Can You Feel the Pain? Tariffs on Energy
• Headwinds: the Impact of Policy Shifts on Clean Tech
• Battery Storage: Charging Ahead in 2025
• Carbon offsets: Apple faces class action lawsuit over ‘carbon-neutral’ apple watches

Weekly Natural Gas Inventories

Source: EIA

Source: EIA

US Energy Market Update

• Gas futures markets tumbled as much as 10% yesterday, their first significant selloff since late February. After starting the week at $4.70 per MMbtu, prompt month gas traded closed yesterday at $4.06, within its trading range for much of late February.
• The most notable trend over the past 3 months is the run up of short term NYMEX gas. The forward curve is now  significantly backwardated–prices over the next 20 months are some 20-30% higher than 2027 and beyond, a reversal of the dynamic before the start of the winter.
• While backwardation does not necessarily indicate a coming squeeze, it does appear to be a level setting of the market and acknowledgement that higher near term rates are needed to defer the risk of a real fundamentals squeeze next winter.
• As the country exits its coolest winter in years, another threat has presented on energy costs: tariffs! The pace of the escalating tariff war between America and its trade partners has been dizzying in recent days.
• While Canada and the US have backed off of their more aggressive postures–shutting down power flows and risking reliability events–the threat remains. We provide more detail on the situation below.
• Power prices mostly declined in February, however the Northeast continues to wade through its most expensive winter in many years. New England spot rates have averaged near $120 per MWh this winter, roughly 3.3X higher than in Chicago.
  Data sourced from various ISOs. 
• There appears to be a reprieve for the remainder of March. A big warmup is anticipated from the Midcontinent and east. 

Can You Feel the Pain?

At this point in time, many of us are familiar with the looming threat of tariffs on imports from our neighbors, Canada and Mexico. Initially slated for February 4th, then postponed to March 12th, and now set for April 2nd, these tariffs have become a moving target in the trade landscape. They have material implications for energy buyers in New York and New England.

• Tariff Timeline As of the time of this publication, tariffs on both the import of Canadian energy and surcharges on hydropower exports threatened by Ontario, have been put on hold pending ongoing negotiations.

• The tariff war with Canada began when President Donald Trump imposed tariffs on Canadian imports, including a 10% tariff on imported energy products to be instituted on March 4. Trump delayed tariffs on most Canadian and Mexican goods until April 2.

• On Monday March 10, Ontario then announced 25% duties on electricity exports to Michigan, New York and Minnesota. They were subsequently delayed on March 11.

• In the pinnacle of Tuesday’s spat, Ontario’s Premier Ford went as far to say, “If the United States escalates, I will not hesitate to shut the electricity off completely.” Following this announcement, President Trump declared an additional 25% on Canadian steel and aluminum tariffs, raising it to 50%. The President said on the topic of the retaliatory electricity tariff, “I will shortly be declaring a National Emergency on Electricity within the threatened area. This will allow the U.S to quickly do what has to be done to alleviate this abusive threat from Canada. If other egregious, long time Tariffs are not likewise dropped by Canada, I will substantially increase, on April 2nd, the Tariffs on Cars coming into the US which will, essentially, permanently shut down the automobile manufacturing business in Canada.”

• The outcome? Doug Ford suspends the 25% surcharge on electricity exports after securing a meeting in Washington with the commerce secretary. On Thursday, March 13th, Ford and the United States Trade Representative will meet to discuss a renewed USMCA (United States-Mexico-Canada Agreement) ahead of the April 2nd reciprocal tariff deadline.

International Power Lines and the Canada-U.S. Grid

Data source: Canada Energy Regulator

The Economic Impacts: Dollars and Sense

• Hydropower makes up most of Canada's electricity generation and exports to the US. In 2024, Canada exported about 36 million MWh, worth about C$3.1 billion, to 27 states, according to the Canada Energy Regulator.
• Ontario was the biggest exporter, sending 12.6 million MWh to 11 states, including 6.75 million MWh to New York and 4.59 million MWh to Michigan.
• At the beginning of March, ISO New England filed with the FERC to put in place a mechanism for collecting customs duties related to electricity imported from Canada and sold into ISO-administered markets. With this, they noted that a 10% tariff on Canadian electricity imports could amount to import duties of at least $66 million annually and perhaps upwards of $165 million.
  • The retaliatory 25% surcharge on  any generator selling electricity to the U.S. is estimated to drive a $10 per megawatt-hour increase to the cost of power imports from Canada. Ford claims this could cost American families and businesses in New York, Minnesota, and Michigan an additional $100 per month on their electricity bill.
  • The combination of a tariff from the US and a surcharge from Ontario would significantly raise the cost of power. Estimating the total impacts is difficult but it would likely be in the hundreds of millions of dollars and consumers in regions most adjacent to the borders would be hit hardest, particularly those in northern New York.
  • How this affects the clearing market will depend on proposals by the various grid operators. Much of this has yet to be clarified.
• Perhaps the most troubling dynamic is the prospect of losing Canadian power imports altogether. New York imports up to 4,600 MW and New England imports as much as 3,225 MW from Canada, making up significant portions of the resource portfolio. Not only is this power typically cleaner than native grid power, it is also cheaper. Without it, U.S. regions affected could experience power shortages and grid instability, leading to potential economic impacts. The more clear cut result is that consumers will simply pay more. 

Headwinds: The Impact of Policy Shifts on Clean Tech

• Staffing and Budget Cuts Lay-offs of federal employees and agency spending cuts in the opening months of the Trump administration limit federal agency capacity and could  slow government approval processes, affecting early-stage clean energy projects- from generation to transmission to carbon capture - which are already jammed up with a queue of projects.
• This shifting landscape for federal bureaucracy and what is required to advance projects with goals of greening up the grid has upended the path forward for many project developers. These projects should continue to expect such changes, and a more bumpy path to achieving sustainability goals than initially envisioned.
• New Focuses for U.S. Energy Signals are clear that renewables are no longer the preferred avenue of generation growth for the foreseeable future. The halting of federal funds appropriated under the Bipartisan Infrastructure Law and Inflation Reduction Act has left recipients of those funds struggling to cover operational costs. Legal challenges and demands for explanations have led to unfavorable outcomes or silence for renewable developers.
• The Trump administration is shifting focus from traditional renewables to other energy forms. Secretary of the Interior Doug Burgum emphasized the need to keep coal plants operational, stating, "under the national energy emergency, we’ve got to keep every coal plant open…and if there had been units…that have been shut down…we need to bring those back." Officials suggest a "market-based approach” is in the works to prevent coal plant closures. The administration also signaled support for co-located nuclear generation with data centers.

Source: S&P Global Market Intelligence

• Stalling in the Renewable Space In Q4 2024, renewables faced significant divestment as confidence declined, with the S&P Global Clean Energy Index dropping 22%.
• Offshore wind company RWE announced layoffs, including 73 employees in Massachusetts.
• In another recent blow to New England, two weeks ago Ocean Winds signaled  plans for a four-year delay to SouthCoast Wind, moving its operation to 2034, and reducing its value by €267 million due to the recent executive order impacting offshore wind.
• However, many of the prime renewable locations are in Republican-led areas such as Texas and Oklahoma. There is hope for renewables to be upheld by decision makers from those districts benefiting from renewables’ job creation and cost reduction potential.

In conclusion, the shifting energy policy landscape in the U.S. presents significant challenges for sustainability efforts. With federal budget cuts and a pivot away from renewables, the path forward is fraught with obstacles. Navigating these changes will require adaptability and strategic planning from developers and policymakers alike.

Battery Storage: Charging Ahead in 2025

• The battery storage sector has experienced remarkable growth over 2024, making it an exciting period for industry observers and stakeholders. And this is no surprise as battery storage is proving to be a technology essential for maintaining grid stability and reliability singled out by almost every Independent System Operator (ISO) including ISO-NE, ERCOT, NYISO, MISO, and PJM in all of their most recent grid strategies and planning reports. See summary of additions by state below.

• Last year we analyzed what was considered explosive growth at the time, citing S&P Global Commodity Insights reporting projects totaling 4.2 GW of expected capacity installed in 2024. The actual figures have come in at 10.3 GW, a 66% increase over 2023 installations.
• Looking to the balance of 2025 - the EIA is projecting utility-scale battery storage to increase by another 18-19 GW, setting the 5th record breaking year in a row. Part of batteries' success in the US energy grid comes from colocating storage with large-scale renewable projects, which reduces infrastructure costs and increases efficiency of power delivery, overall allowing for the storage of excess renewable power for peak demand periods.

U.S. Utility-Scale Battery Power Capacity Additions (GW)

• For comparison with other generation capacity entering the grid in 2025, battery storage is projected to claim a firm second place standing trailing only behind solar and significantly ahead of new natural gas and wind generation combined.
  
  Source: EIA
  

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Carbon Offsets: Apple Faces Class Action Lawsuit Over ‘Carbon-Neutral’ Apple Watches

• Apple is facing legal scrutiny over environmental marketing claims made about their ‘carbon-neutral’ apple watch series (Series 9, SE, and Ultra 2), which first launched in September 2023.
• Their carbon-neutrality claim was based on a combination of direct emissions reductions (75%) and “high-quality” carbon offsets purchases (the remaining 25%), with the company stating they had retired 485,000 MTCO2 of CO2 equivalents through two anti-deforestation projects: Kenya's Chyulu Hills Project and China's Guinan Project.
• A class action lawsuit is now contesting the legitimacy of these claims – with the core legal argument being that both projects lack additionality. Chyulu Hills, according to the plaintiffs, lies within a national park that has been legally protected from deforestation since 1983 and the Guinan Project, despite Apple’s claims of reforesting ‘barren land,’ was reportedly well-forested before their initiative began. As such, the lawsuit contends that any environmental benefits Apple claims credit for would have occurred regardless of their investment – making their claims of directly additive environmental benefits potentially misleading.
• As this legal battle continues to unfold, the case has contributed to an ongoing discussion about the varying quality of environmental attributes available on the market, especially concerning carbon offsets and renewable energy certificates (RECs).
• Last month Microsoft announced its shift in policy away from short term unbundled credits, and towards “long-term, higher-impact” measures. Google made a similar announcement last summer.
• High-quality environmental attributes - those from projects demonstrating additional benefits and measurable local impact - will inevitably come at premium prices. While offsets can vary dramatically from < $1 to > $500 per ton based on factors like project type, location, and vintage year, there are some reasonable approaches to find middle ground at a reasonable cost threshold.
• As a best practice, we recommend sourcing offsets from projects less than five years old with measurable local benefits that are both intuitive and consistent with sustainability goals.
• New York’s Local Law 97 provides a good example of this; the law was recently amended to open an Affordable Housing Reinvestment Fund, where building owners can purchase carbon offsets that directly fund low-income housing electrification.
• For more information about carbon offsets or guidance on sourcing high-quality environmental attributes, feel free to reach out to our team at commodity@veolia.com. We offer both consulting and transaction assistance to help our clients navigate environmental attribute markets to meet both voluntary and compliance-based goals.

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.