CPV Retail Blog January 16, 2025 -

CPV RETAIL BLOG

CPV Retail Blog January 16, 2025

In this edition, Bob Barron summarizes recent stories in which President-Elect Trump promises to deliver changes to energy policies and what to consider moving into this new year and beyond.

UNPACKING THE INCOMING ADMINISTRATION’S FOCUS ON ENERGY POLICY

By: Bob Barron, VP of Energy Management

President-elect Donald Trump has promised to utilize Executive Orders to revise a wide range of energy policies established by prior administrations. The potential rollback of regulations aimed at reducing greenhouse gas (GHG) emissions and air pollution, while supporting domestic manufacturing and continuing the energy transition, is a significant priority for further review.

The key federal regulations of interest regarding “modification” include those implemented by the Environmental Protection Agency (EPA). These regulations focus on GHG standards for cars and trucks, methane rules for oil and gas production, and standards for fossil-fueled power plants. The combination of the Congressional Review Act resolutions, and other executive actions reflects the strategy that was used during Trump’s initial term.

The outcome of the energy and climate tax provisions, grant programs, and other stipulations embedded in the IRA, the Infrastructure Investment and Jobs Act, and the CHIPS and Science Act remain uncertain under the new administration.

There has previously been little enthusiasm among Republicans to weaken renewable energy tax credits, as there is strong bipartisan support for them. This support originates from the original Clean Electricity Production Tax Credit (PTC), which was passed by Democrats and signed into law by President Bush in 1992, demonstrating that the two parties can collaborate effectively. This legislation has been renewed multiple times over the years under various Congresses. The growth and popularity of these tax credits are likely to encourage some changes, but a complete dissolution seems unlikely.

Moving beyond tax issues, the critical climate bills contain more than $100 billion in clean energy, climate, and environmental grants. However, these initiatives may face challenges after the new administration takes office on January 20th. If the funds are not distributed by that date, there is a risk that they could be back on the balance sheet of the U.S. Treasury. Additionally, the Department of Energy’s Loan Programs still have unallocated funding awaiting approval and could be at risk even though they support new technologies related to the green transition.

Markets and developers typically dislike uncertainty, and as we approach further into 2025, we find ourselves in such a situation. The Federal Energy Regulatory Commission (FERC) is currently reviewing changes to the PJM capacity auction, and the new administration adopts a more laissez-faire approach. There is a possibility that a significant portion of the current policy framework may be modified—either substantially, slightly, or even repealed—in the upcoming Congress. However, the United States is still expected to lead in energy innovation. There seems to be enough bipartisan support that could be harnessed to ensure the U.S. continues to build upon the existing foundation of past investments in green energy and advanced technologies.

gg

PJM Regulatory Review

PJM has issued a cold weather alert for the western zone of its system as more arctic air moves south. The critical question is what will happen in the following week, as record-low temperatures may affect a large portion of the lower 48 states.
FERC received comments last Monday related to the Variable Resource Requirement (VRR) reference unit modification and treatment of RMR Resources as they address the consequences of the recent increase in capacity market prices.
FERC also received comments last week related to the Resource Reliability Initiative (RRI), which is designed to prioritize certain resources in the queue.
FERC received input from various interested parties on PJM’s proposed modifications. These modifications would require all intermittent resources to participate in the capacity market and to revise the market seller offer cap.
It’s worth noting that all of the filings at FERC that will impact the upcoming capacity auctions and PJM’s policies going forward have supporters on both sides of these issues.
Finalizing the 2025 load forecast and integrating large, proposed load increases is still under review by PJM, as the underlying ELCC ratings will be informed by this forecast.

Market Drivers

Energy Market Update

The story right now is the protracted cold moving spot prices up dramatically as well as NYMEX prices across the strip catching bids. The prompt February contract had traded down to $2.80/MMBTU just a few weeks ago where it is now trading closer to $4.0/MMBTU with northeast and New England cash prices trading above $10/MMBTU.
The severe contango between Cal/2025 and Cal/2026 has compressed significantly as the prompt year has moved up faster than Cal/2026 given what is expected to be a strong storage re-fill market this summer as storage inventories continue to draw down rapidly. • Microsoft announced an $80 billion capital budget in 2025 for data center growth the majority of which will be spent in the United States as it continues to build out its AI capabilities.
The recent cold weather over the PJM footprint has increased loads – although prices relative to where natural gas prices are trading have been less than expected. With 25% of PJM’s winter load currently covered by coal generators, some gas generators could not clear the market with double-digit gas prices.
US LNG exports hit an all-time of 15.5 BCF/D as Plaquemines LNG Export Terminal begins commercialization and Corpus Christie 3 begins testing. Both facilities are expected to be fully operational by the end of 2025.