Energy Market Updates for Fall 2024

Data center growth 

As the use of cloud computing and AI expand, data centers are being built in communities across the U.S. From 2014 to 2023, data center power demand grew by 100 terawatt-hours (TWh), accounting for about 4 percent of total U.S. electricity consumption. By 2030, high-growth scenarios predict this will increase over 260 percent to 400 TWh. 

Reshoring of U.S. manufacturing 

Fueled in part by supply chain concerns and federal and state initiatives, manufacturing spending in the U.S. has more than doubled since 2014. As manufacturing plants return to the U.S. from overseas, we can expect to see power demand continue to rise.  

Overall electrification  

The electrification of vehicles and buildings in the U.S. has an obvious impact on power demand. By 2030, electric vehicles (EVs) could constitute 20 percent of on-road light vehicles, growing from less than 10 TWh of consumption in 2023 to over 80 TWh by the end of this decade. Similarly, electric heating is boosting residential power consumption. 

The critical role of capacity costs

The most notable impact of this rising demand is on capacity costs. Let’s start by looking at what makes up an energy bill:  

• Energy represents the actual energy used to run things. This price is set through an hourly auction and is different each hour of the day, based on the instantaneous demand and the cost of generation. This is the hedge-able factor of your bill. 
• Capacity, meanwhile, is a reliability cost — you can think of it as insurance — set through an annual auction, typically for 3 years into the future. The cost is the same every day until the next auction and is based on the amount of generation needed to meet peak demand.  

There have been a lot of shifts in the capacity markets in recent years. If your business is located in the region of the U.S. served by PJM — the regional transmission organization that coordinates the movement of wholesale electricity throughout 13 states and Washington, D.C. — you’ve likely heard that the most recent PJM capacity auction, for the June 2025 to May 2026 capacity year, resulted in a significantly higher clearing price of $269.92. That’s compared to $28.92 megawatts per day for the June 2024 to May 2025 capacity year. 

This will affect millions of PJM customers, impacting commercial customers uniquely based on their peak usage. The 2026/2027 auction has been delayed, as the industry determines how to best move forward amid consumer advocates questioning some of the capacity auction rules.  

But while rule changes have impacted the market structure to increase reliability during strained times, the delays haven’t been able to send long-term price signals to build out new generation. 

Power price fluctuations

Though near-term power prices have fallen on news of mild weather, long-term prices hold steady, and future curves haven’t decreased amid concern that rising demand will outpace supply over the next couple years. This has also caused increased correlation to the natural gas market, considering expectations that older power plants will need to be used more frequently if demand grows faster than new generation can be built. 

Natural Gas Market Updates: Supporting Demand Growth

Understanding the fundamentals of the natural gas market is the key to understanding what’s happening in the market today — and where prices could go. 

Natural gas market fundamentals

Production

Historically, natural gas storage capacity has been small compared to the size of the industry, with producers reacting when price dictates. But as the industry has grown over the last decade, storage capacity hasn’t kept up. 

LNG demand

The U.S. is experiencing a surge in demand for liquefied natural gas (LNG), with five LNG processing facilities currently under construction. Once completed, these facilities will add 12.5 billion cubic feet (Bcf) per day of new export capacity. This growth is gradual, with additional capacity expected over the next few years. However, many variables may still influence these timelines. 

New power demand

With power generation difficult to forecast, experts use different methodologies to estimate annual power consumption. The U.S. Energy Information Administration (EIA) estimates we'll reach 5 trillion kWh annually by 2045, while a recent Wells Fargo report claims this will happen by 2030. Overall, predicting near-term supply and demand balances for natural gas is difficult. But to support meeting this new power demand, the balance leans bullish by 8 Bcf/d.   

The storage challenge  

When we consider the likelihood of market volatility, the lack of new gas storage is the primary factor. Currently, U.S. storage levels of 3,932 Bcf are nearing the upper end of the 5-year range. The balance is expected to rise to almost 4,000 Bcf by mid-November, pushing it to the top of this range again. These high levels signal the market is well-supplied in the near term, though caution is warranted due to seasonal and demand-driven fluctuations. 

Outlook for Winter 2025

Several factors could affect natural gas prices this winter: 

• Weather: Despite mild forecasts, a severe cold snap could cause natural gas prices to surge. 
• Production: Producers must remain vigilant in balancing market demand, as storage hasn't increased in line with industry growth. 
• Power demand: The intermittent nature of renewables can introduce volatility in natural gas usage for power generation. During warmer-than-normal conditions, higher renewable output reduces demand, exerting downward pressure on prices. Conversely, prolonged cold weather could cause price spikes. 

Where prices go is largely dependent on these factors. For up-to-date market insights, subscribe to our Market Commentary.  

How Customers Can Manage High Energy Costs

With challenges like rising demand from the electrification of buildings and cars, the rapid increase in data centers, and the reshoring of manufacturing, businesses must confront reliability and capacity market changes. The potential for price fluctuations underscores the need for comprehensive energy strategies and close collaboration with your energy supplier.  

There are a few ways commercial energy customers can better manage their costs:  

• Peak shaving: Peak shaving, also known as load shedding, is a strategy to reduce electricity costs by reducing power consumption during the five highest peak demand periods in the summer. Reducing usage during key summer peak hours can reduce your organization’s costs for the following year and potentially lead to less capacity needs in the future.
• Demand response: Grid operators, hoping to reduce the amount of electricity being consumed at a given time and avoid brownouts or blackouts, pay businesses to reduce energy when demand exceeds supply. Participating in a demand response program is another option for lowering your organization’s energy bottom line.  
• Consider energy as part of your business’s strategy: Connect with your energy supplier to make sure your business has a true strategy in place — not simply a process for paying the bill. An experienced energy supplier can help a business navigate market volatility while minimizing risks and maximizing opportunities, based on the business’s unique risk tolerance and needs.   

As the industry continues to be challenged to meet rising power demand while maintaining reliability, building out new generation sources, and balancing natural gas supply and demand with limited storage, it’s likely the next year will be another volatile one. The potential for price fluctuations underscores the need for comprehensive energy strategies. 

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