Energy Markets Update

In this newsletter, we cover key factors impacting US energy markets.  This week, we'll cover New York's constant fight to meet demand, the EPA's dirty rollbacks of regulations, some Texas success, and an update on Amazon's nuclear PPA progress. 

Table of Contents

• Market Update
• NYC's power grid is running on borrowed time 
• EPA's Time Machine: Bringing Back the Good Old Days of Smog and Mercury
• Don't Mess With Texas Renewables
• Going Nuclear Update: Amazon signs PPA with Talen’s Susquehanna nuclear plant

Weekly Natural Gas Inventories

Source: EIA

Source: EIA

Market Update

NYC's power grid is running on borrowed time 

As Zone J faces a critical shortage of in-city generation, policy dreams are colliding with harsh reality. The latest band-aid - extending four aging peaker plants past May 2025 - only underscores the desperation. Two recent developments might shift the landscape: a surge in demand response commitments and the pending ownership change of a major Queens power plant. While offshore wind stalls and new plant permits gather dust, keeping the lights on is getting more expensive by the day. It's a stark reminder that in the end, grid physics outweighs good intentions, and ratepayers will continue footing the bill.

• June 2025 kicks off the first month of a 24-month extension for the operation of four NYC peaker plants beyond their planned 2025 retirement date, responding to surging capacity costs and reliability concerns. The Gowanus 2 & 3 and Narrows 1 & 2 barge-mounted generators will continue operating for an additional two years to address a projected 446 MW deficit in the city's reliability margin.
• This decision came amid several challenges facing New York's power grid. The implementation of stricter emission rules had already led to the deactivation or reduced operation of over 1,000 MW of capacity, with another 590 MW expected to go offline by spring 2025. The requirement is particularly critical because New York City is a load pocket, meaning it has limited transmission capability to import power from outside areas.
• Since then, several developments have emerged to address the long-term capacity challenges. Demand response capacity increased by 16% in summer 2023, reaching 1,487 MW. Our napkin math suggests this will not be enough on its own.
• Developments like increased Demand Response participation are countered by the eventual generation retirement of the  Gowanus 2 & 3 and Narrows 1 & 2 barge-mounted generators are now only 23 months away. See NYISO’s high level summary chart below, where every uncertainty is going to be meaningful to the future energy costs to the downstate rate base. 

Source: NYISO, 2024

• A significant deal between NRG Energy and LS Power, valued at $12 billion, would transfer 13 GW of gas-fired generation to both PJM and the NYISO. On Thursday, June 12, NRG Energy and LS Power submitted a request to the Federal Energy Regulatory Commission (FERC) seeking approvals. Allowing NRG to operate more assets in Zone J may give the generator more confidence and standing room to propose to develop, build and operate needed new thermal generation in Zone J where others like Alpha Generation, who operate in the area are currently holding back on requesting to develop more due to the regulatory uncertainty for long term development projects.
• Looking ahead, the New York rate base will continue to face challenges with declining reliability margins and increasing demand. The Brattle Group projects that electric vehicles and other distributed energy resources could provide 8.5 GW of grid flexibility by 2040, addressing approximately 25% of the expected peak load. However, with generator deactivations outpacing new supply additions and growing electrification demands, the state continues to grapple with maintaining an adequate power supply for its future needs (see NYISO’s 2025 deficiency outlook projections below).
• New York City Margin Forecast Uncertainty
  

Source: NYISO, 2024

• NYISO reviews these resource requirements annually and notes the fundamental challenge that our analysts and customers should all be aware of by now: keeping the lights on in the city that never sleeps isn't getting less expensive in the near term. 

EPA's Time Machine: Bringing Back the Good Old Days of Smog and Mercury

On June 11, the EPA announced plans to remove greenhouse gas (GHG) emissions limits for power plants as well as rolling back mercury standards for coal and oil-fired plants. Proponents of the cut argued that these emissions standards were causing the premature retirement of one-third of the US’ 2024 coal capacity, potentially threatening grid reliability. Opponents of the cuts highlight the absurdity of considering US power plant emissions insignificant. The industry has contributed 5% of the total worldwide emissions over the last 3 decades .  

• Power plant GHG and mercury emissions standards were last updated for stricter limits in April 2024 with initial compliance scheduled for 2032. Please refer to our May 2024 newsletter for more details on the previous iteration of the EPA’s carbon and mercury emissions regulations for power plants. 
•  The April 2024 updates required operators of coal plants to install carbon capture technologies to abate emissions or shut down. The high expenses associated with carbon capture retrofits and questions concerning fossil fueled power plants “significantly” contributing to air pollution are underpinning the arguments used in this round’s planned cut. 
• The US’ coal fired generation capacity peaked back in 2011 which was the last year it accounted for more than 40% of annual electricity generation. Coal power plant capacity in the US has been declining steadily at around 10 GW per year since due to retirements and gas retrofitting. Prior to the EPA’s announcement, 68.8 GW of coal was slated to retire by 2030.

Source: IEEFA: Nowhere to go but down for U.S. coal capacity, generation (Oct 2024).

• 2025 was staged to retire 12.3 GW of power generating capacity with 8.1 GW being sourced from coal retirements. These retirements were slated to be a 65% increase compared to 2024 capacity retirements. With the majority of this year’s US coal retirements planned for the back half of 2025, the rollback of emission regulations could cause coal retirement figures to dwindle in 2025 and beyond.   

Source: EIA: Preliminary Monthly Electric Generator Inventory (Dec 2024)

Don't Mess With Texas Renewables

As many ISOs and RTOs are preparing for record grid demand, ERCOT has reportedly cut its summer blackout risk to less than 1%. Texas continues to set solar and wind output records which, coupled with battery storage records, have been the main drivers of this success. We will take a look at how ERCOT is preparing for the future of their grid and how future legislation may play a key role.

• ERCOT’s power grid is facing rapid demand increases due to Texas’ growth in manufacturing and the fact that it’s become a prime target for the datacenter industry. While many ISOs and RTOs are facing the same challenges, ERCOT may be setting the example for the best path forward. Last week, ERCOT cut its summer blackout risk to 0.3%, which is a sharp decline from 12% last year. 
  
  Records Being Set
• Much of the improved forecast can be attributed to the increased output from renewables. On May 12th, ERCOT solar output hit a new record of 27,036 MW, according to Constellation. On April 13th, ERCOT achieved a record in combined solar and wind output at 41,675 MW and surpassed it just four days later with a 41,916 MW output. These production numbers have coincided with record battery storage levels, with a maximum of 5,970 MW of storage around the same time. See chart below for ERCOT Power Capacity
  
  Source: Freepoint Solutions

• Battery storage plays a key role in increasing reliability of a renewables dominated grid by bridging the gap when the sun’s not shining and the wind’s not blowing. Looking at the amount of battery storage in the interconnection queue, it’s clear to see the direction that ERCOT is headed. See below

Source: Freepoint Solutions

• ERCOT’s renewable infrastructure was developed in part due to a 2005 Texas legislature which implemented a 18,500 MW Competitive Renewable Energy Zone (CREZ) transmission complex. According to Freepoint, this led to wind generation opportunities and eventually solar connection to the CREZ lines to meet daytime demand. Battery storage is next in line to benefit from this legislature as it’s needed to stabilize renewable output. However, recent legislation has made a 180 to challenge this growth and development.

Regulatory Outlook

• The Texas Senate passed bills recently that would have imposed significant restrictions on renewables, but they didn’t make it past the House. In Washington, we’re seeing the same trend. As mentioned in our previous newsletter, we are currently waiting to hear from the Senate by their July 4th deadline on the future of renewable tax credits outlined in the Inflation Reduction Act. The continued success of Texas’ grid reliability will depend on this outcome and future support for renewable energy development. 

• ERCOT is known for its unique and fast-paced connect-and-manage (C&M) approach to interconnection to their grid. While other ISOs complete detailed studies of all generators seeking interconnection, ERCOT sees an "absence of rules.” The main negative to this process is that generators assume a large risk of curtailment if the transmission system can’t absorb their output. This aspect of the ERCOT market has played a huge role in the success of renewable energy projects in the region, given there were less barriers to entry. See below noted during Texas Congressional Testimony on March 5, 2025.
  
  

Going Nuclear Update: Amazon signs PPA with Talen’s Susquehanna nuclear plant

• In our “More Power Captain!” newsletter, we noted the challenges Amazon Web Services (AWS) had faced in securing nuclear energy from Talen’s Susquehanna nuclear plant. The original procurement proposal outlined a “behind the meter” connection between Susquehanna and a co-located AWS data center. The plan was struck down last November by PJM due to concerns over its impact on grid reliability.
• Last week, AWS and Talen found a solution to this issue by entering into a 1.9 GW power purchase agreement to secure emissions free Susquehanna energy for its Pennsylvania data centers. By pursuing this “front of the meter” approach, AWS and Talen no longer need to build transmission wires directly connecting its data centers to the nuclear plant. This solution also allowed the deal to occur without Federal Energy Regulatory Commission approval according to Talen.

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.