CPV Retail Blog March 27, 2024 -

CPV RETAIL BLOG

March 27, 2024

I admit it! I am a Trekkie and love the old episodes of my youth, particularly the banter amongst and between the main characters. “We need more power” has probably been quoted millions of times under a plethora of unique contexts, which always seems to engender laughter. Recently, this need for more power has morphed well beyond the humorous warp engine analogy and into an uncomfortable reality of actually needing the power.

We Need More Power, Scotty

I admit it! I am a Trekkie and love the old episodes of my youth, particularly the banter amongst and between the main characters. “We need more power” has probably been quoted millions of times under a plethora of unique contexts, which always seems to engender laughter. Recently, this need for more power has morphed well beyond the humorous warp engine analogy and into an uncomfortable reality of actually needing the power.

Northern Virginia has established itself as the leader in data center development due to the hub of the internet co-located nearby, as well as the massive growth of data requirements from various US government cabinet divisions. Trying to approach one of these could put you in close proximity to a bit more security than your average RING camera.

The AI chips that are making NVIDIA investors smile are also power hogs and as these chips rapidly expand their dominance in server banks, so goes the power demand. Couple this with onshoring and a bit of re-industrialization and suddenly you have, for the first time in a while, power demand growth that renewables cannot meet without support from dispatchable resources.

Based on recently filed IRP’s (Integrated Resource Plans) from various utilities it is clear that this is a nationwide phenomenon across multiple states and ISO’s all of which are asking for the same thing…more power!

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PJM Regulatory Review

The US Senate Energy and Natural Resources Committee met last week to consider the recent nominations for the 3 open FERC commissioner positions.
A new Federal/State Current Issues Committee/Collaboration was established to better deal with any regulatory gaps between states and the federal government primarily associated with transmission jurisdictional issues, power generation resource adequacy, reliability, wholesale and retail market dynamics, and infrastructure.
Grid reliability appears to be edging out environmental and climate concerns at the FERC as renewables continue to increase across the system.
The market is still awaiting clarification from FERC on the recent ruling regarding the settled rate doctrine violation adjudicated in appellate court impacting the 2024/2025 BRA. With the next BRA scheduled for this summer, the updated guidelines will be necessary to allow PJM to get back on a settled schedule for the auctions. Debate over the rules governing how energy efficiency resources participate in these auctions continues.

Market Drivers

Energy Market Update

Production has now dropped to levels seen a year ago through a combination of natural declines and choked-back production. Producers appear to be exhibiting the necessary discipline to mitigate the likelihood of storage congestion and Mother Nature is helping with just enough cold weather to defer large-scale injections.
Oil price strength continues as global demand led by India and China remains robust while inventories led by unleaded gasoline continue to deplete. Both Brent and West Texas Intermediate are solidly above $80/BBL as global jet fuel demand is also supporting prices while OPEC spare capacity is seen as providing a soft cap should prices continue to extend past $90/BBL.
Refinery issues/availability after recent disruptions due to the successful use of drone attacks by the Ukrainians has left diesel supplies particularly tight and is adding (no pun intended) fuel to the oil fire.
In a previous summary I had incorrectly stated that Haynesville production had approached 15 BCF/D when in fact it had recently peaked at just over 12 BCF/D. The Haynesville rig count has continued to drop and production has reacted accordingly due to this and seasonal maintenance leaving production down closer to 10 BCF/D.
Power demand forecasts recently seen in multiple utility IRP’s are being universally revised upward due to strong industrial demand (on-shoring), data center growth, and stronger GDP expectations.
The EPA’s Good Neighbor Rule would require interstate pipelines to retrofit over 1000 large compressor stations to reduce nitrous oxide emissions. The potential impact on power/gas integration and reliability given the time constraints is being reviewed.