Energy Markets Update

In this newsletter, we cover key factors impacting US energy markets.  This week, we update our readers on the budget bill affecting energy policy and the IRA, what you need to know about peak summer demand, the California third-party supplier lottery, and NEISO's new DASI program. 

Table of Contents

• Market Update
• The End of an IRA? Budget Bill Would Sunset Major Provisions of IRA
• It's Open Season for New Capacity Tags
• Luck of the Draw: California Direct Access
• The DASI Doozy: A New Ancillary Service Program in NEISO

Weekly Natural Gas Inventories

Source: EIA

Source: EIA

Market Update

• In recent updates we’ve discussed the return to volatility of North American energy markets. A good exhibit of this is the trading pattern of 2025 NYMEX gas, which experienced a 20% increase, followed by 15% drop, and then an 8% increase, all in the past month. 
• Many analysts are now expecting tighter market conditions in 2025 and 2026 and that prices could go higher. We’ve made the case that there is value well out into the 3-4 year forward strip but that buyers should be opportunistic and use the volatility to their advantage. Talk to your commodity advisor about Veolia’s “strike price” tool that can assist you by providing automated prompts when prices are within a desirable range. 
• With some moderate weather throughout much of the Midwest and East, we anticipate some buying opportunities over the next few weeks as the market absorbs the likely news of robust storage injections and a slight uptick (+1.5 bcf) in daily gas production. The short term drags of sluggish oil prices, a downgrade in the credit rating of the US, ongoing tariff uncertainty, and a combative Federal budget season seem like other potential catalysts for a bearish turn.  
• There have been significant activities on the legislative front and we cover them in more detail below. Most notably is legislation passed by the U.S. House of Representatives that, if signed into law, will scale back some of the major tax incentives instituted in the Inflation Reduction Act. The House-passed bill would gradually reduce the investment and production tax credits for solar, wind, and energy storage projects. The credits would remain unchanged for projects operational before 2028, and then drop to 80% in 2029, 60% in 2030, 40% in 2031, and 0% in 2032. 
• The one, albeit comparative modest bright spot for clean energy, is that work has resumed on the 810 MW offshore wind project in New York, Empire Wind, after the Trump administration lifted its stop work order on the project. In return, Governor Hochul has reportedly agreed to support additional expansion of proposed natural gas pipeline projects in the state. 
• Last week, Massachusetts Governor Maura Healey released a sweeping energy bill (HD4707) that would impact just about every aspect of the energy sector in the Commonwealth. With the stated goal of promoting affordability–MA has some of the highest electric rates in the country (still quite a bit lower than California though)-- the bill would scrap the Alternative Portfolio Standard, slash solar net metering incentives, reform how utilities contract for basic service, add additional oversight to the retail supply market for small customers, streamline interconnections, and even remove some of the barriers to approval of new nuclear facilities.

The End of an IRA?

On May 22, the House passed a sweeping budget bill that targets a handful of Biden-era programs, notably the Inflation Reduction Act's cornerstone incentives. Driven by pressure from fiscal hawks in the House to include greater spending cuts in the bill, changes include an accelerated phase-out of the Investment Tax Credit and elimination of tax credit transferability mechanisms. While consensus among most House Republicans has been to scale back the IRA, some moderate House Republicans are unhappy with this approach, and several Senate Republicans support the IRA’s tax incentives, leaving open the question of what language Congress can ultimately agree to send to President Trump to sign into law. 

• The Republican party remains divided over their response to the Democrats' landmark 2022 Inflation Reduction Act (IRA), particularly regarding its clean energy tax credits. While some moderate Republicans have expressed support for preserving certain IRA provisions that benefit their districts, most have aligned with party leadership in backing broader cuts to the climate law. 

• Both the Investment Tax Credit (ITC), which offers a 30% tax break for solar projects, and the Production Tax Credit (PTC), which provides per-kilowatt-hour incentives for wind and other renewable generation, would face accelerated phase-outs under the Republican plan. Under the House Bill, the credits would remain unchanged for projects operational before 2028, and then drop to 80% in 2029, 60% in 2030, 40% in 2031, and 0% in 2032. The term “operational” is also a critical change, as the current threshold for complying with the statutory deadlines is construction commencement. As a practical matter, this implies that the phaseout will be considerably faster. 

• The Republican bill would also eliminate the tax credit transferability feature, which has been crucial for developers who may not have sufficient tax liability to fully utilize the credits themselves. The IRA currently allows both ITC and PTC tax credits to be transferred or sold to other taxpayers, a key financing mechanism for clean energy projects. This would be a devastating change for the many smaller developers; only larger diversified developers with a large tax base would be able to fully take advantage of the incentives. 
• However, the bill includes a carve-out for nuclear energy, which would continue to qualify for production tax credits for projects that start construction by 2031, and nuclear would be the only sector able to continue to access the tax credit transferability feature.

• An analysis by the Solar Energy Industries Association (SEIA) suggests the changes would threaten 300 domestic solar and storage manufacturing facilities and eliminate nearly 300,000 jobs, including 86,000 in manufacturing. SEIA projected these would come with projected losses of $220 billion in solar investments through 2030 alone.

• According to an analysis by S&P Global Commodity Insights released on May 8th, which used Q4 2024 as a baseline, the combined installed capacity for wind, solar, and battery storage would see a 15% reduction by 2035 if IRA tax credits were repealed and offshore wind development was suspended. (See S&P’s projection below)

• The timing is critical as solar and storage are projected to account for 73% of all new U.S. electric capacity additions between 2025-2030, making these sectors essential for meeting growing power demands. The momentum from these programs, based on current funding levels, is projected by the EIA to carry even further into the middle of the century.
• Former Republican FERC Chairman Neil Chatterjee and 14 GOP congress members have expressed support for preserving aspects of the IRA, specifically "smart energy policies like incentives for solar and storage," extending the transferability mechanism during the phase-out, and other adjustments to sustain production support so that companies can meet the U.S.’s growing energy demand. 

• Even with continued support from these individuals,  the legislation has cleared the Republican-controlled House, setting the stage for a broader political battle over the future of U.S. clean energy policy.

It's Open Season for New Capacity Tags

As regional grid networks prepare for meeting peak summer demand, Veolia’s enhanced forecasting capabilities and automated response solutions can now help organizations be more strategic in managing their summer peaks. Let's explore how these changes could impact your capacity charges and what new tools are available to help.

• The kW demand of a building’s meters during the peak hours on the grid can be a significant billing determinant for future costs. There are various similar and generally synonymous naming conventions including “Peak Load Contribution” (PLC), “Capacity Tags”, or “Coincidental Peak Contribution.”

• Each ISO has provided updated cost reduction figures for 2025 which highlight the estimated value of decreasing your Capacity Tag by 1 kW. Savings from demand management will be most significant in PJM with nearly $100 reduction in cost for each kW of capacity reduced (see chart below).

Source: NYISO, PJM, ISO-NE

• The peak consumption hours on a grid typically occur during the late afternoon on the hottest days of the year. The pattern has shifted slightly later in recent years due to increased solar adoptions. We summarized the 2024 peak consumption hours per ISO in a previous newsletter.

• With the 2025 programs starting in about a week, building managers have the opportunity to mitigate future energy costs by taking action to reduce electricity usage during peak events. Appropriate planning and action can reduce or even eliminate tags.

• One route for businesses to reduce peak load is by participating in formal Demand Response (DR) programs. These programs compensate businesses that are able to reduce electricity usage on high-demand days. Veolia offers annual working sessions for clients actively engaged in peak management to review the prior year’s performance while also planning for the year ahead. We’ve also noted a few plans that are relatively simple to implement on your own (see chart below).

Source: Veolia

• Veolia also monitors weather conditions and load forecasts from various ISO’s throughout the summer to alert customers when a peak event is likely to occur. Customers will receive alerts in the morning on the higher risk days in order to give them time to limit consumption.

Example of a Veolia peak day forecast for ISO-NE customers

• If you’re interested in receiving these alerts or hearing more about Veolia’s demand response programs, please reach out to commodity@veolia.com!

Luck of the Draw: California Direct Access

As many of our readers know, California’s energy markets are only partially deregulated. This means that consumers cannot simply choose a third-party supplier for their gas and power needs and immediately initiate supply contracts. California has a unique program called Direct Access (DA), which was introduced in 1998 as part of the state's energy restructuring initiative. The program barred new customers from accessing DA since 2001 with one caveat;  since 2013, customers that successfully clear the DA lottery system are permitted to shop for power. So, if you're a business owner in California looking for more options to mitigate rising supply costs, Direct Access might be worth exploring!

Lottery Process

• For lottery enrollment, customers or their agents submit six-month notices to their incumbent IOU (utility) during the second full business week in June (June 9 - June 13, 2025).
• Lottery results are announced in August and customers have 15 days to accept or decline participation.
• If the customer is selected and accepts participation, the chosen third party supplier must submit a Direct Access Service Request form within 45 days.
• Once accepted, you’ll have up to 16 months to contract with a third-party supplier, and service may begin as early as January 2026 and as late as December 2026.  

Why Enter?

• The DA program offers a limited but valuable opportunity to procure power under alternative pricing mechanisms from those offered by the utility 
• Third-party suppliers can provide customers with more control over energy costs and integration with renewable power options and other long term capacity products
• California has the highest electric power rates in the country. While a large portion of these are utility tariff rates and non-bypassable, commodity rates have also been subject to significant inflation over the past five years. DA programs allow clients to source their own offsite capacity resources, such as renewable and battery projects, that may provide a long term hedge against price inflation.  
• Participation is risk-free. Even if selected, you can decline and remain on utility service.

For help in entering the California Direct Access lottery, reach out to your energy advisor at commodity@veolia.com. 

Fresh as a DASI: A New Ancillary Service Program in ISO-NE

ISO New England recently implemented a major market reform that introduces new charges to consumers to satisfy wholesale reserve requirements. DASI, which is shorthand for the Day-Ahead Ancillary Services Initiative, is off to a bumpy start, costing approximately $65 million to New Englanders in its first two months for an expense that ISO-NE had originally forecasted to be $100 million annually.  This article details what you need to know about the recent change and how this will impact your electricity costs moving forward.

• DASI serves a similar function to its predecessor, Forward Reserve Market (FRM), procuring ancillary service capabilities to ensure grid reliability and reserve readiness. The major difference being the transition away from a forward-looking seasonal market to day-ahead – allowing for better responsiveness to real-time grid conditions, according to ISO-NE. 

• Given that intermittent energy sources like solar and wind are also comprising a growing share of the generation mix, there are real risks of unexpected energy shortfalls and grid instability, making it crucial for ISO-NE to secure resources capable of rapid deployment.

• DASI introduces two ancillary service categories and constraints in the Day-Ahead Market to address this growing concern: Flexible response services (FRS) & Energy Imbalance Reserves (EIR).

• The Flexible Response Services (FRS) is the direct replacement for the FRM, allowing the ISO to quickly dispatch least-cost spin and non-spin resources during sudden unexpected events.

• The Energy Imbalance Reserves (EIR) product will work to cover the energy gap between the MWs cleared in the day-ahead market and the day-ahead forecasted load.

• This market change has resulted in a new cost component that is currently hitting customer bills . For March and April, the total DASI cost to New England amounted to approximately $65 million. ISO-NE had originally forecasted the program’s impact to be approximately $100 million annually. Costs have moderated in recent weeks but this has caused massive uncertainty for suppliers offering fixed price supply. 

• Customers with preexisting electricity contracts may receive a Change in Law (CIL) notification from their electric supplier, with a separate line item for DASI taking shape in the next couple billing cycles. Utility-billed customers will see the charge incorporated into their overall supply-rate. DASI charges are expected to change seasonally, although by how much is still an open question given that the ISO has only billed a couple of months, thus far.

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.