Almost 20% of Americans face prospect of higher energy bills
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MORE than 65 million Americans are facing the prospect of significantly higher electricity prices next year, thanks to shrinking energy supply and rising demand on the biggest US electric grid.
An increase for the year starting in June would follow a power auction held in 2023 that saw prices come in at a decade low of US$28.92 per megawatt-day. The latest auction results are expected on Tuesday (Jul 30) afternoon. This time around, analysts predict prices could be two to four times higher.
The jump comes as the grid pushes to rein in an oversupply of capacity just when Virginia ramps up power demand to feed its artificial intelligence and data centres. Closures of coal and natural-gas fired plants will also remove about four gigawatts of generating capacity from the grid – enough to power about 3.2 million homes.
The grid operator, PJM Interconnection, is tasked with coordinating with power plants and utilities and managing a grid that stretches from New Jersey to Illinois. PJM holds auctions to ensure sufficient supply. Prices that emerge from those auctions are charged to homes and businesses through their utility bills.
PJM’s auction is one of the most closely watched events in the US power markets. Results typically signal to plant owners and project developers whether to keep aging power plants open or build new generators, respectively. It also provides plant owners with an important source of revenue to perform maintenance and be ready to serve in tight conditions.
More than a dozen PJM market observers, from analysts to financiers, surveyed by Bloomberg News see grid-wide prices rising compared to last year’s auction. Expectations vary significantly, ranging from US$35 to US$125 a megawatt-day, though most are somewhere in the middle.
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PJM is also imposing new rules limiting how much supply they’ll take from plants that have suffered outages during extreme weather. The newest and most efficient gas generators could see the total megawatts they earn payouts for drop by 20 per cent while older gas units may see their supply discounted by almost a third, according to Moody’s Ratings.
Baltimore may feel the biggest pinch in terms of prices – the city draws power from a Brandon Shores coal-fired plant that is on the brink of closing. That threatens to drive up payouts to other generators in the area by more than fivefold to US$400 per megawatt-day.
Supplies are so tight in the Baltimore area that only about 546 megawatts will determine whether capacity prices fall in line with the broader mid-Atlantic region or soar to a record high, said Pieter Mul, an energy markets expert with PA Consulting. Similarly, Dominion Energy’s Virginia utility is seeing strong growth from data centres straining the transmission system that prices are at risk of rising to more than US$400 a megawatt-day, he said.
“I am worried about cost increases,” said Lorig Charkoudian, a Maryland lawmaker who has been warning PJM of a coming supply crunch in Baltimore for years. “We count on PJM for reliability and keeping costs down.”
While PJM said it cannot comment on expected prices until the market closes, the retirement of Brandon Shores wasn’t expected and was the result of a private agreement, spokeswoman Susan Buehler said on Monday in an emailed statement. “PJM has been expressing its concern about a supply and demand mismatch for quite some time now.” BLOOMBERG
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