Banananomics: Drivers of Energy Prices for the United States

Drivers of Energy Prices for the United States

Causal connections: Artificial Intelligence (AI) and Electric Vehicle (EV) usage drive electricity demand to the edge of grid capabilities.

• Solar and wind power needs more battery storage for peak usage times.

• Low-cost fusion energy is coming online in 2024.

• New energy projects continue into 2024 despite high interest rates.

Inputs that matter: The average cost of electricity per kilowatt-hour in the U.S. is at an all-time high.

• Power systems and grid operators must often manage negative prices when solar output peaks during the day.

• The Energy Information Association (EIA) expects a 4% rise in summer demand.

• According to Deloitte, capital expenditures for energy projects surged to a record-breaking $170 billion in 2023 for the most significant electric and gas utilities.

The opportunity: While solar power has made the U.S. power-generating system greener, it has also made it more volatile, especially in the top solar market, California.

• Peak solar power generation coincides with the lowest residential electricity demand during the midday.

• When power demand begins to surge after 6 p.m., solar output begins to fade.

• To cope with the natural and weather-dependent solar power, the grid needs much more battery storage than currently available to smooth out the difference in peak output and demand and the significant power price variations.

• U.S. battery storage capacity is set to nearly double in 2024 as developers plan to add 14.3 GW to the existing 15.5 GW this year.

• California and Texas are leading the way in battery storage additions due to the rapid growth of variable solar and wind capacity in these two states.

Zoom in: The Independent explains that nuclear fusion is described as the "holy grail" of clean energy, providing near-limitless energy by mimicking the natural reactions that occur within the Sun.

• Sam Altman has invested $375 million in Helion Energy, the first company in the world to secure a purchase agreement for nuclear fusion energy. Microsoft included it in its plan to transition to clean energy sources by the decade's end.

• This first fusion power plant, whose feasibility is being assessed in Chelan County, Washington, will produce electricity that will be used to power the grid.

• Constellation will serve as the Power Marketer for Helion's first customer, Microsoft.

• In a recent interview, Helion Founder and CEO David Kirtley told The Energy Daily that we are "on track to have Polaris built by mid-2024."

Between the lines: The greater the battery reserve for wind and solar, the more profitable renewable energy becomes since providers can store more energy until peak times.

• Business will continue as usual, with a slight increase in summer demand until more battery storage comes online.

• Such storage will primarily affect California and Texas.

• Fusion is a wild card with a single customer that, if proven, could reduce power generation costs and supply for the entire grid over the next few years.

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