Six Power Market Prices and Trends to Watch from a Leading Energy Strategist

How and Why Are Power Markets Evolving? 

We’re seeing four main drivers today across the power grid: 

• Decarbonization – We have ambitious climate goals, and because of these, we’re seeing diversification. Hawaii and California, for example, aim to be carbon-free by 2045.
• Diversification – In the US, we employ many forms of energy including solar, wind, nuclear, gas, hydro, and coal power. 
• Decentralization – Also because of diversification, we’re seeing more resources located behind the meter. In New England for example, there's so much solar behind the meter that's invisible to grid planners that some days net demand decreases by up to 5,000 megawatts (MWs) in a grid that often doesn't hit more than 15,000 MWs in one day.
• Digitalization – The power grid is becoming more digital with real-time data management and control. That digitalization - in the form of data centers and AI - is also driving huge new levels of demand across the globe.

While Renewables Come Online, So Do Larger Loads

Loads could increase 60% by 2050 according to the Electric Power Research Institute (EPRI).

One reason for this is that electrification adds new demands to the grid.  In addition, onshoring of industry adds to the load, depending on the region. 

Data center builds are also booming. They constitute the single largest driver of load growth, though the boom in data center load will be highly regional. They’re a new, mostly unknown variable, which creates challenges for forecasting. (Yes Energy’s power demand forecasts, based on a regression model, can help with this.) 

Upcoming renewable generation in the Northern Virginia region, with yellow representing projects in the advanced development stage, and green representing projects under construction from Yes Energy’s Infrastructure Insights Dataset

While some things might reduce the use of electricity such as refining less oil as electric vehicles become more common, new demand will vastly outstrip impacts from structural changes, or efficiency gains. The speed at which we are taxing the power grid will accelerate in coming years.  

Renewables Are Languishing in the Interconnection Queue

Anything over 10 MW needs an interconnection study in many power markets. Afterward, the project developer initiates a new interconnection request and enters the queue. 

Currently, over 2,000 gigwatts (GW) are languishing in the interconnection queue. 

The interconnection process is slowing. The Pennsylvania-New Jersey-Maryland Interconnection (PJM) says it won’t process a new solar plant for three years. In the Southwest Power Pool (SPP), it’s six years. The Federal Energy Regulatory Commission (FERC) is involved in the queue now (except in the Electric Reliability Council of Texas [ERCOT]).

Only about 20% of the queue is actually built. (Most proposed projects are withdrawn.) There’s twice as many projects entering the queue rolling over from previous years as in the current year. You also have to pay earnest money now, according to FERC, not just placeholder fees. 

In addition, solar projects with batteries are increasing. You are also beginning to see more batteries paired with gas plants, since the battery can reduce the startups, wear and tear, operating costs, and water use from a gas plant by up to 50%.

What Are the Implications for Power Market Prices?

1. Congestion Particularly Affects Renewables

A wind farm in Northern MISO correlated to negative average congestion for the past 12 months. Source: Yes Energy

Sometimes, renewables can produce more energy than the grid can handle, creating reliability challenges. Then, renewables can't get power across to demand because of transmission constraints. This means a lot of power generated cheaply with renewables can’t get to areas with high demand because of congestion. 

2. Congestion Is Costly

The costs of congestion run in the billions of dollars. Congestion results in out-of-order dispatching (using more expensive resources because of transmission limits).

3. Sometimes Prices Go Negative

In some instances, particularly with congestion, the price goes negative because you can't move power and you're selling it into the grid, benefitting from production tax credits. With those credits, you're paid up to $24 a megawatt hour for generating, so even if the prices in the market are negative, as long as they're not close to negative $24, you can benefit from putting the power into the marketplace.

Source: Yes Energy

4. Weather Now Impacts Price Formation

Weather used to only impact demand; now it impacts supply as well. 

Wind is unpredictable – a region might have huge gusts and then 15 minutes later be calm. When wind isn’t blowing, you need to derive power from another source. 

The sun is much easier to predict than wind. It’s one reason it’s paired with batteries more often than with wind. 

Solar is especially significant in markets like California, which set multiple clean energy records in 2024. 

5. Peak Price Times Are Changing

While weather historically has mostly affected demand, weather now impacts renewable generation. In the morning, you have multiple power sources (except solar), but as people wake up and increase demand, the sun rises. 

Planners used to have to deal with the daily peak. Now, in areas with large quantities of solar power, operators have to focus more on managing the evening peak. This results in a two-tiered pricing environment. It leads to the “duck curve” where demand net of solar (which largely must be met with dispatchable resources), is minimal during the day and then soars quickly into the evening.

Source: CAISO

There were some days in California net demand was zero because of solar. 

Weighted average prices tripled from the trough to the peak during the day over the course of the year on average.

If you’re a trader, you have to understand and trade around that. 

If you have a battery to manage, this is where you have an opportunity to participate in the markets. 

In Australia, there’s so much solar that operators have had to curtail residential rooftop solar. We haven’t seen this in the US yet, but we might in some markets. 

This is why weather forecasting (like with Yes Energy’s power demand forecasts) becomes so critical. Some market participants have satellites just to monitor cloud formation, opacity, and location, because they want to see how it will affect the grid. 

Source: ISO-NE

6. Energy Droughts Can Affect Prices

As we bring more renewables in, what happens if we have a five-day atmospheric river in California with excessive rainfall and significant cloud cover? Or a period in Texas or the Southwest Power Pool when wind dies off? Now you have a so-called renewable “energy drought.” To account for that, you must have enough other generation resources or longer-duration batteries to ensure resource adequacy. 

Now battery energy storage systems are a critical part of the grid. Where you see solar saturation, you now see many batteries. 

Currently, the majority of batteries are lithium-ion because they are light and cheap. This could change as sodium and other technologies improve. The US has plenty of space to put in slightly larger batteries, such as flow batteries or reverse rust batteries. 

In addition, we predict that eventually four-hour batteries just won’t be enough and new technologies will need to step forward to help balance power supply and demand. 

Conclusion

While smaller renewable projects are increasingly populating interconnection queues, there is a large backlog of assets with growing wait times. We’re seeing more congestion on the grid, and more batteries coming online (and more needed) to help stabilize the grid. 

Renewables are also increasingly impacting power market prices, as we see peak price times shift toward the evening, prices occasionally run negative, and weather be a growing factor in price formation.

These trends can make forecasting power market prices a challenge. Those responsible for trading in power markets, developing new resources, or meeting current electricity demand can all benefit from better forecasting and modeling techniques that account for burgeoning renewables. 

Yes Energy’s EnCompass solution can help you model the grid and look toward the future, anticipating the addition of renewables. EnCompass is a power flow modeling solution that helps you produce market price forecasts, analyze generation and transmission development, and make informed decisions in the transitioning power grid. EnCompass comprehensively evaluates new technologies for decarbonization and sustainability while maintaining reliability.

EnCompass is the software of choice for making optimal power supply decisions from short-term scheduling and trading to long-term capital investment. 

In addition, Yes Energy’s Demand Forecasts enable you to make the most informed decisions possible when buying and selling in energy markets worldwide. Generated with proprietary forecasting engines, TESLA forecasting solutions feed comprehensive weather variables and calendar information to proprietary algorithms. The TESLA solution is an advanced regression model that uses detailed demand and weather observation history and incorporates the latest near-term data to respond to changing weather patterns, extreme weather events, and holidays that might impact energy demand.

About the speaker: Peter Kelly-Detwiler is the cofounder of NorthBridge Energy Partners LLC, an independent consulting organization with expertise and perspective on US energy markets. He’s also the author of The Energy Switch, published in 2021. Learn more and follow Peter on LinkedIn.