Energy Markets Update

In this newsletter, we cover key factors impacting US energy markets, focusing on the reelection of President Trump. We discuss the energy landscape under a new presidential administration, demand response programs to mitigate the effects of PJM capacity cost increases, and FERC's latest decision regarding data centers and colocation.

Table of Contents

• Gas & Power Update
• What a Trump Victory Means for Energy
• Increased Demand for Demand Response in PJM; Deadlines for 2025 Participation Are Near
• FERC Rejects Nuclear Plant's Amended Power Contract with Data Center: Implications and Industry Response

Weekly Natural Gas Inventories

Source: EIA

Source: EIA

US Energy Market Update

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

• President Trump has been reelected as the 47th President of the United States. His second term is likely to have far reaching implications in the energy sector and beyond. We will cover these emerging trends in this and future updates, however some of our key takeaways at this time are as follows: 
  • Despite the rhetoric of energy maximalism, gas and power prices are unlikely to be impacted materially in the short and even medium term under Trump. Supplies are already plentiful, prices are low, and these are the economic incentives that will ultimately dictate corporate investment.
  • LNG export terminals are likely to see quicker approvals going forward. These facilities likely do more to increase domestic prices however they should also incentivize more production. This affects price later out in the curve (five years+).  
  • Nuclear power and gas-fired plant builders are likely to find broad support in the Trump Administration. 
  • The most “at-risk” sectors in the new energy landscape are solar, wind, and transmission. Mr . Trump is no advocate of clean energy and the tariffs that he has promised to impose on imports would make both domestic and imported panels and turbines more expensive. This will impact PPA prices accordingly. 
  • Other clean energy incentives such as the Inflation Reduction Act (IRA) are more vulnerable than they were two days ago, but their future is less certain. We are more concerned about the financial viability of offtake projects in future years, after the existing queue is cleared. 
• Needless to say, President Trump’s election is a seismic shift in the energy landscape, and given Mr. Trump's propensity for rash and unpredictable shifts in policy, a lot more could change than is currently anticipated. We will continue to cover these dynamics in future publications.  
• Natural gas spot prices remained exceptionally weak to start off the month as the oversupplied market ran head-on into abnormally warm temperatures across much of North America. The entire Eastern Seaboard has seen highs in the 70s and 80s and has felt more late summer at times. Regional spot prices have approached the $1.00 per MMbtu mark in various markets in the first few days of November. 
• NYMEX prices are in the mid $2.00 range but have been unable to find solid footing. Calendar years 2025, 2026 and 2027 trade at $3.06, $3.60, and $3.70 per MMbtu, respectively. 
  Source: CME
• Spot prices for electricity averaged higher in October, but they similarly reflect the weak gas market and have benefited those with short positions.  
  Source: ISO

What a Trump Victory Means for Energy: Deregulation, Tariffs, and the Climate Agenda

With the election of Donald Trump to a second term, the U.S. energy policy is poised for a significant shift, moving away from climate change mitigation to a framework that prioritizes deregulation and domestic energy production. This change comes amid a broader political shift, with Republicans taking control of the Senate and potentially the House, which may allow for sweeping legislative changes affecting the energy sector.

• Trump’s victory signals a return to his administration's "energy dominance" agenda, characterized by reduced regulations on fossil fuel production and expedited approvals for infrastructure projects like LNG export facilities. These actions suggest potential boosts for oil and gas production, though market dynamics and existing production levels might temper any immediate spikes in output. We suspect there is less “there” there, but LNG exports are more likely to be price inflationary for US consumers. 

•  Additionally, Trump's administration will undoubtedly roll back some various Biden-era environmental initiatives, including greenhouse gas emission controls across multiple sectors. We anticipate that some of the struggling coal plants may hold on longer – however this trend was already taking hold given regional reliability concerns and capacity rate increases, see. e.g.  PJM capacity prices increase over 10x. 

• The Republican control of the Senate introduces further uncertainties, particularly concerning the fate of federal tax incentives for clean energy outlined in the Inflation Reduction Act, which Trump has derisively termed the "green new scam." While a full repeal of these incentives is unlikely due to opposition within Trump’s own party, significant modifications could be on the legislative agenda and may stymie growth in the sector for projects that are slated more than a few years out. Ultimately, it is important to acknowledge that domestic producers of renewable energy technology could still fair well under the new Administration, however the wind is no longer at their backs as it has been under the Biden Administration. 
  • The ITC and PTC tax credits could face significant challenges under a potential Trump administration. While a complete elimination of these Inflation Reduction Act  tax credits is not considered the most likely outcome, substantial modifications or restrictions are possible. A "severe downside case" scenario modeled by Wood Mackenzie analysts includes phasing out the Production Tax Credit (PTC) and Investment Tax Credit (ITC) starting in 2029, with bonus "adders" eliminated by 2026. This scenario could result in a 30% drop in wind, solar, and storage capacity installations from 2024-2033, potentially leading to approximately $350 billion in lost investment over a 10-year period. Section 30D, which provides EV tax credits, is considered particularly vulnerable to changes or repeal. 

• FERC Commissioner Mark Christie is likely to be nominated to Chairman and this almost certainly will result in the dismantling of nebulous rules promoting clean energy transmission infrastructure, namely FERC Order 1920, the rule that set out new guidelines for transmission buildout and cost allocation. FERC Order 1920 was already legally tenuous and Mr. Christie has been vocal about his disdain. The big losers here will be developers of grid scale solar and wind projects, however they would have been silly to be too optimistic about Order 1920 in the first place. 
• Investors have reacted swiftly, with clean energy stocks like First Solar and Sunnova seeing significant declines amid fears of policy reversals that could undermine the sector. We suspect that prices for renewable projects and PPAs will increase materially as a result of this election. 
  Source: S&P
• The broader implications for clean energy companies are admittedly  dire, as these policy shifts will certainly slow the transition to renewable energy sources while favoring traditional fossil fuels. We think nuclear remains well positioned for potential renaissance in America –tech firms still want and need clean reliable power and this technology with somewhat broad based political appeal.  A plurality of both Republican and Democratic voters favor nuclear power and the need has never been more obvious.
• On the global stage, Trump’s potential withdrawal (again) from the Paris Agreement and revisiting sanctions policies could disrupt global oil markets and international relations, particularly with key energy players like Iran and Russia.

• In summary, Trump's second term could reshape the U.S. energy landscape in some profound ways, emphasizing deregulation and fossil fuels at the expense of renewable energy progress. This pivot raises crucial questions about the future of U.S. energy policy, its alignment with global climate goals, and the economic implications for the burgeoning clean energy sector.

Increased Demand for Demand Response in PJM; Deadlines for 2025 Participation Are Near

Demand Response programs can provide savings amidst a surge in electricity capacity costs in PJM region.

• The PJM region, spanning 13 states, is bracing for a significant surge in electricity capacity costs starting next June. This impending increase has prompted many energy consumers to seek additional cost-mitigation strategies. Our analysis reveals that participating in Demand Response (DR) programs offers a compelling solution. These DR programs, available across PJM, present an opportunity for facilities to offset the rising costs. Through strategic engagement in these programs, clients can see payments of up to $400k / MW-year.
• For 2025, emphasizing that some of these programs have enrollment deadlines that are fast approaching. Below we’ve compiled some high-level talking points about the DR programs including benefits readers may not have considered before.

• Timing can be critical for DR program enrollments. With our expertise in vendor selection and performance term negotiations, our team can swiftly guide you through the complex DR landscape. Acting now ensures you maximize benefits and secure optimal terms before the 2025 deadlines close. 

FERC Rejects Talen Nuclear Plant's Amended Power Contract with Amazon Data Center: Implications and Industry Response

In a highly anticipated decision last week, the Federal Energy Regulatory Commission (FERC) has rejected PPL Corp.'s amended “co-located” interconnection service agreement with Talen Energy Corp. This agreement would have increased the power supply from the Susquehanna Nuclear plant to an Amazon.com Inc. datacenter campus from 300 MW to 480 MW. The ruling arrives amid broader concerns regarding the reliability and financial implications of such large-scale colocated power deals within the PJM Interconnection.

Source: FERC

• The rejection was aligned with extensive protests by utility giants Exelon Corp. and American Electric Power Co. Inc., who argued that the proposed amendment would compromise grid reliability, increase transmission charges for other customers, and inappropriately reallocate grid capacity. Despite these protests, FERC's decision was not entirely anticipated by the market, evidenced by a notable decline in shares of involved power producers, including Constellation Energy Corp. and Talen Energy.
  • FERC Chairman Willie Phillips expressed dissent, viewing the decision as a regression in terms of electric reliability and national security. His concern emphasizes the ongoing tension between fostering innovation in energy supply arrangements and maintaining strict regulatory oversight to ensure system reliability and economic fairness
• This decision is important as it underscores the powerful interests of integrating large-scale renewable and nuclear energy projects with massive data center operations. The rejection suggests a cautious regulatory approach towards modifications in energy supply agreements that could set precedents for future energy infrastructure developments. 
•  Constellation Energy, despite the setback, remains committed to pursuing colocation deals with hyperscalers, indicating a continued industry push towards integrating clean energy sources with burgeoning tech infrastructure needs. This is evident from Constellation's recent initiative to reopen the Crane Clean Energy Center in Pennsylvania, showcasing a continued drive to link nuclear power with tech giants like Microsoft. They may find more sympathy in the new Trump Administration, however this is unclear. 
  • Mark Christie, the likely candidate for the new FERC Chair, is suspicious of these deals and to his credit, suspicious of most measures that could result in price increases to consumers. However, in his concurrence he demonstrated an open-minded approach by acknowledging the complexity of the proposal at hand and expressing willingness to consider various perspectives on both the specific issue and related co-location proposals.
• The ruling also casts a spotlight on the broader implications for the clean energy market, particularly in regions like the PJM, where data centers have become large clean energy buyers. With data centers in the U.S. accounting for half of the country's clean energy procurement, the decision could influence future corporate energy sourcing strategies. 
•  The industry must adapt to regulatory challenges by innovating power supply solutions for data centers, exploring new power purchase agreement models, and scaling energy projects with major data consumers carefully to maintain grid stability and meet regulatory standards. At its most basic level, large tech giants who are already flush with cash might simply agree to pay the same transmission charges that all other customers pay; the consumer blowback is otherwise bound to happen sooner or later.

Market Data

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