Surging Electricity Prices Amid Global & Technological Shifts
In these times of high uncertainty, wholesale energy prices are at market highs but still tracking under future utility pricing. Read on for insights into energy costs by Rob Myers, Founder & Managing Partner of TogetherSolve in Columbus, Ohio.
Electricity prices are highly correlated with natural gas and oil pricing. It was a cold winter, and more gas was used during the heating season this year than in recent memory. This sets a higher bar for refilling inventories during the “injection” season from April through October. Anything from hurricanes to pipeline snafus can mean less of a cushion for next winter. The gas market has more moving parts than ever, and a big one is as uncertain as Mother Nature: the war in Ukraine. If Russian sanctions are eased, then exporting gas will be less attractive to producers (producers have been enjoying premium pricing for exporting to Europe). In turn, that will affect storage levels in the U.S. because producers will be less incentivized, and it will take longer to refill inventories. Another wrinkle is the increased demand for gas due to AI technologies coming online. The weather used to be the big wild card for U.S. gas producers, but things are becoming increasingly complicated.
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PJM Grid Auction Shocks With 9x Higher Capacity Costs
The dramatic increase in capacity prices from the auction for the PJM grid that serves the Midwest will mean significantly higher electricity costs starting in June 2025. Auction results were 9x what was anticipated. PJM’s capacity market, called the Reliability Pricing Model (RPM), ensures long-term grid reliability by securing the appropriate amount of power supply resources needed to meet predicted energy demand in the future. This increase is projected to continue for the next 3 to 5 years.
AI Boom Fuels Unprecedented Energy Demand
It seems that nearly every day, there is yet another announcement about a large data center that will be hooked up to the grid. Some of the future expected load is not only for traditional data center use, but also to train AI large language models that process staggering amounts of publicly available data, and in turn, electricity. This demand will lead to additional strain on the grid and thus higher utility pricing.
Energy traders are still trying to determine how to place their bets. The wholesale forward electricity market is still relatively low compared to spiking utility prices, although it most likely will result in higher prices for clients based on previous third-party supply contract positions.
Strategic Recommendation: Lock In Fixed Rates Now
Take a fixed position on 100 percent of your consumption needs through at least 2027 and eliminate price exposure during this time of high uncertainty. You eliminate further price risk, and capacity can be appropriately managed.
Contact TogetherSolve or your GBQ advisor today for additional insights to help your business prepare for ongoing uncertainty.
Guest Article By Rob Myers, Founder & Managing Partner, TogetherSolve
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