Introducing The Weekly Power Outlet.

The Weekly Power Outlet is a publication where we present a few things that look interesting to us each week in the power sector including stories, electricity markets, and maybe even weather. We may dive into the story of the day or comment on something we find on the way back pages of the newspaper. While we will speak on electricity markets, our intent is not to be market prognosticators, instead concentrating on things that could be market driving one way or another. If readers are looking for things like price targets, options strategies, Fibonacci retracement lines, etc, this isn't the place. If it were, this would a prospectus on a new fund promising big returns instead of an introduction to a weekly publication covering a few stories on the electric sector. The WPO is also not intended to be an OP-ed page, but our opinion will sneak into our discussion every so often. For the most part, the reader will find we have a sort of an Occam's razor approach where most topics can be discussed with simple answers. With that, welcome to The Weekly Power Outlet.

Electricity has been the commodity that doesn't get much thought or discussion. That started to change over the past few years with renewable discussions, and even more so recently with datacenters and crypto miners. A political pundit commented that electricity is going to be the new gasoline in American politics. We agree, get ready for the blame game.

We need go no further then this past week when DOE Sec. Chris Wright was in Iowa and Josh Siegel, who's Substack in on PoliticalPro, asked him about the view that the Trump administration is stifling renewables which is rising electric prices. Sec. Wright's response was along the line of, 'rising prices are a result of the previous policy, but we will be blamed.'. Some pointed to quotes from MidAmerica Energy in a story where they talked about renewables helping meet demand and keep prices lower for Iowans. While we wouldn't argue with that, we did remember a quick scan of the November 2024 MidAmerican Resource Evaluation Study where MidAmerica has started to hedge its bets on its own comments.

Source: MidAmerica Resource Evaluation Study Repot. Nov 1, 2024

Also of interest, it looks like even the ISOs might be getting involved. Last week NYISO released a blog post talking about DA/RT energy prices and how their overall impact on consumer prices. The following paragraph got our attention, "Overall, electricity prices in New York are on the rise, with both retail and wholesale components of consumers’ electric bills seeing an upward trend. But the drivers of these increases are largely associated with macroeconomic forces and rising costs resulting from public policies rather than real-time price fluctuations.". Rising costs from public policy is not something we would have heard from an ISO in the past. To the contrary, blogs such as these have been devoted to explaining how they planned to adhere to public policy.

Choose your favorite metaphor, as prices continue to rise, the blame game is just starting.....we're in the early innings.

One of the components of rising energy prices has been the capacity markets in ISOs like PJM and MISO. In some cases the rises have been astronomical. For instance, in the planning year of 2018-2019 capacity in MISO was $10/MW-day. This summer, MISO capacity is $666.50/MW-day. A quick explanation in simple terms, capacity is money charged grid/electricity users with the money used as a guaranteed income source for generation and determined in a yearly auction called the Planning Resource Auction (PRA). In theory it's a mechanism, or incentive, to make sure enough generation is built and maintained to meet demand. In case your first thought is 'we've built a lot of renewable generation', because of the nature of renewables like solar and wind, they are variable producers replacing baseload dispatchable. Basically, baseload can be called upon whenever, while variable is dependent on available fuel and conditions like sunny and windy. Because of that, they aren't credited as highly when modeling.

Last week, MISO discovered an error in the model it uses to arrive at the cleared auction price. The best part, this error went unrecognized for seven years which is frankly because at $10/MW-day, no one cares. At $666.50/MW-day, it becomes a little more relevant. MISO sent out a report describing the issue. Of note, $280 million will have to be restated in customer statements from MISO. The really interesting fact was 80% of the dollar impact was from the summer capacity market which makes us June through August. MISO has been making calls to customers to discuss with the expectations that the final numbers will be known by the end of August.

The total financial impact based on net positions is
approximately $280 million, with more than 80% in the
2025 summer season.

Over the past couple years, and more recently, the poster child for datacenters and AI has been semiconductor chip maker Nvidia. So when their leather jacket wearing CEO Jensen Huang talks, people tend to listen. This week Huang was in Taiwan to meet with chip manufacturer Taiwan Semiconductor regarding current and upcoming projects. In some comments, Huang suggested that nuclear power should be a strong consideration for Taiwan. While this seems like a no big deal comment, it just happens to be on the eve of a referendum scheduled to decide whether to start one reactor.

The topic is interesting for a variety of reason with LNG being one. Taiwan has been moving away from nuclear for decades and there was some fanfare in May when their last nuclear plant was closed. At the time, it was argued that LNG would pick up the bulk of any void left for nuclear. As the US puts more export capacity of LNG into service, the marginal fuel (natural gas) that tends to set prices most of the time in the US will have additional markets. Electricity consumers have benefited for some time as US natural gas drilling output has ramped with fracking while the commodity has been mostly export constrained leaving supply/demand dynamics favorable for lower prices. With rising electrical loads worldwide, more export capacity, and growing need for gas, it's reasonable to expect higher prices as ample US gas becomes subject to world prices.