AI Power Boom Winners and Losers | OilPrice.com

America’s energy market is on the verge of a major shake-up as consumption rises amid the boom in AI technology.

The increase in energy demand, led by data centers, has begun to create winners in the American electricity sector. Expectations of increased consumption in the coming years are driving up wholesale and retail energy prices, increasing profits for power plants and utilities, and increasing household debt for consumers.

The explosion in energy demand led by AI could also trigger legal changes in some countries that would allow utilities to own and invest in energy supply.

Profitability of Power Producers

Many independent energy producers are increasing their earnings guidance, expecting much higher auction prices for the coming years to continue to support their earnings.

Amid increased inventory, this year’s capacity auction prices in one of America’s largest markets are up compared to last year.

PJM Interconnection, which coordinates the movement of large amounts of electricity and ensures the supply of electricity for 65 million people in all or 13 regions of the eastern and Midwest US and DC, said in late July that it has acquired enough resources to reach the need for reliability. Award Year 2025/2026.

The auction resulted in a price of $269.92 per megawatt (MW)-day for most of the PJM region, compared to $28.92/MW-day for the 2024/2025 auction. That’s a nine-fold jump in one year.

Key drivers of higher prices included a reduction in auction supply due to generator retirements, expected rate increases, and reforms approved by FERC, including improved reliability measures. risk for extreme weather conditions.

The high prices in the Maryland, Virginia and North Carolina areas “are due to insufficient resources within those areas and bottlenecks in the transmission system that limit the ability to import,” according to PJM.

“These prices indicate that those areas will benefit from additional resources, additional transmission to allow increased exports to those areas, or a combination of the two,” PJM said.

As a result of the high prices that power generators have cleared in power auctions, many power producers have raised their earnings guidance when they announce Q2 results this month.

Talen Energy, for example, raised its 2024 guidance ranges, with a new adjusted EBITDA range of $720 million to $780 million and a new adjusted Free Cash Flow range of $245 million to $285 million.

Vistra Corp said that it is confident that it will achieve the result of the EBITDA Continued until the upper end of the guidance of 2024.

“Furthermore, due to our strong hedge position and recent PJM auction results, we are increasing our 2025 Continuing Operating Adjusted EBITDA forecast by $200 million to $5,200 million to $5,700 million,” said Jim Burke, president and chief executive officer. Vistra officer.

The company has begun construction on two new solar facilities, a 200-MW facility sponsored by Amazon in Texas and a 405-MW facility sponsored by Microsoft in Illinois.

Constellation Energy raised its adjusted operating earnings per share for 2024, as well, as its trading business outperformed guidance in a volatile market.

The decline in PJM capacity auction prices will translate into an additional increase of $0.25 in earnings per share (EPS) for 2025 and $1.25 in additional EPS for 2026, Constellation Energy said.

Capacity auction prices will remain high over the next few years as power producers race to add more power plants amid growing demand.

“What we see in [latest] The capacity auction is a key factor,” Hugh Wynne, co-head of renewable energy services and research at SSR, told The Wall Street Journal, referring to the capacity and supply needs of the electricity market. of the US.

Higher Prices for Consumers

The need for more sources of electrical energy and the increased investment in transmission lines and network expansion and improvement will begin to increase the cost of domestic electricity prices as utilities, when approved by the authorities, they will want to pass some of the higher costs and capex on to customers.

US consumers are bracing for higher electricity bills as electricity providers step up investment in much-needed upgrades amid an aging power system that is not designed to handle rising demand and frequent extreme weather events .

Last year, the price of electricity exceeded the average consumer price in the United States. Another expected increase in electricity rates for consumers could cause political tension in some areas and service areas.

“The cost of transmission and distribution has been one of the main reasons for the increase in electricity prices in recent years,” the US Energy Information Administration (EIA) says.

Due to the tight supply of electricity, electric utilities are declining this year as the proliferation of artificial intelligence technology has led to the most unexpected person in the stock market.

The structure of the US energy sector may also be on the cusp of regulatory changes as some regulated environmental utilities push for changes to allow investment in new generation.

Such is the case with Pennsylvania-based PPL Corporation, whose Vice President of Investor Relations, Andy Ludwig, said in connection with the Q2 earnings that the company will “advocate for legislative changes in Pennsylvania that will facilitate the development of the necessary generation , including an authority that will support managed investment in next-generation utilities.”

By Tsvetana Paraskova for Oilprice.com

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