CPV Retail Blog February 4, 2025 -

CPV RETAIL BLOG

CPV Retail Blog February 4, 2025

In this edition, Bob Barron, VP of Energy Management at CPV, sheds light on the shifting paradigms on AI power demand forecasts.

SHIFTING PARADIGMS ON AI POWER DEMAND FORECASTS

Just when it seemed safe to explore the impact of data centers and the growing dominance of AI technologies, an unexpected event – a Black Swan – has introduced additional complexity into the system. What happens to electricity demand projections across the U.S. grid if DeepSeek’s contention that even high-performance models will require much less electricity than many are forecasting?

Since the introduction of ChatGPT over two years ago, college term papers are not what they used to be, and around 80% of Fortune 500 companies have integrated it into their operations. Nearly every day, new power demand forecasts emerge, projecting a level of growth not seen since the Industrial Revolution.

Even before the news about DeepSeek was made public, the demand forecasts for data centers were based on somewhat rosy scenarios and fraught with uncertainties. Estimates from the DOE indicated that total power demand related to the AI infrastructure was around 4.4%, and that it was expected to grow between 6.7% and 12%, already a wide spread. It was clear that breakthroughs in power consumption and efficiencies were likely to occur, irrespective of DeepSeek. However, this recent news has unsettled Silicon Valley and equity investors.

Apple’s App Store reported that after just one week after its release, DeepSeek became the most downloaded application, indicating the intense focus in the potential of the technology. A reassessment of capital budgets across the industry is almost certain, stemming from the uncertainty caused by this new technology.

Now more than ever, corporations need a strategic procurement plan to successfully navigate the evolving landscape.

PJM Regulatory Review

PJM and the Governor of Pennsylvania announced an agreement in principle to establish a collar around capacity prices applicable to the next two auctions. This collar concept will set a price floor of $175/MW-day floor and a cap of $325 per MW-day. However, this concept still requires FERC approval, and PJM plans to file a Section 205 request in mid-February, after meeting with PJM members this week.
Governor Shapiro has proposed several programs aimed at incentivizing increased generation. This includes reformation of the permitting process, tax credits, and a “Pennsylvania only” carbon fee. The compatibility of these initiatives within the current regulatory framework has yet to be adjudicated.
PJM has also released an updated load forecast, which indicates that a significant increase in demand is expected over the next 20 years. The forecast projects a summer peak of over 220,000 MW.

Market Drivers

Energy Market Update

The cold weather that led to a massive 320 BCF storage withdrawal last week has retreated north, resulting in widespread above-normal temperatures along the major cities on the East Coast. For the first time in two years, seasonal storage differentials are now in a deficit, which has helped support NYMEX prices above $3.00/MMBtu.
Off-peak power prices have been particularly strong during the recent cold snap, with several days showing off-peak settlements exceeding on-peak prices in PJM, NYISO and NEPOOL.
China’s announcement regarding the capabilities, costs, and energy consumption of its Deep Seek AI open-source system triggered widespread selling of energy stocks, as well as the technology firms associated with data center expansions. The lack of transparency caused a “sell first, ask questions later” response from the market.
European storage balances continue to decline as pipeline flows from Russia remain constrained, and weather-related demand accelerated withdrawals, creating re-fill risk over the summer. US LNG will be critical in supporting our European allies.
The impact of President Trump’s tariff policy on the market is still being evaluated, as Canadian energy imports of $100 billion/year will be the first big test moving forward.

CPV RETAIL BLOG