Market Views

Market View: Reweighting US gas

The role of fossil gas as a counterweight to ongoing dominance of intermittent renewable power in utility and corporate investment plans has become a pressing issue as forecasters balance between current planning cases and the constraints imposed by legacy infrastructure.

Energy transition dealmaking continued to inch forward two weeks after a banner rout in public equity prices, with sustained power demand growth underpinning new capital deployment.

Private capital groups with energy transition funds continue to back renewables, but private equity has migrated toward services, manufacturing and ancillary business lines and use cases in recent weeks. Apollo, headed by potential Trump US Treasury Secretary nominee Marc Rowan, picked up the majority interest in industrial power developer State Group from Blue Wolf Capital in a deal arranged by investment bank Moelis, constituting a bet on further distribution, efficiency and digitization efforts at manufacturers.

Karbone price insight: With capacity prices in contango at elevated outright levels across the US, industrial buyers are motivated to seek the lowest-cost electrons wherever possible. SPP deliverable capacity in the 2029 planning year is at a more than $50/MW-day premium to prompt year capacity on the Karbone hub.

While lower fossil gas prices linked to expanded drilling access under the Trump administration could have a pass-through effect on capacity and power pricing, a long history of tariffs approved by utility commissioners and FERC and implemented by RTOs have shown little correlation between cheaper gas and cheaper power. The long-term role of gas will be in focus at a FERC hearing scheduled for Friday on the agency’s Order 1920 dictating changes to US power planning.

Meanwhile, Arizona will get a 200 MW/800 megawatt-hour battery energy storage system manufactured in the US by Tesla in 2025. EDP Renewables signed a long-term offtake agreement with Salt River Project this week, and has been greenlit in part because it was able to demonstrate significant water usage savings compared to fossil gas that would require water-intensive fracking extraction techniques.

In a more gas-reliant vision of the future US energy system, interest in renewable natural gas and other decarbonized gas generation pathways could reignite. Early indications that permitting for carbon capture systems could ease under a new administration, and the potential to monetize RNG and similar technologies through state and federal incentive programs could end up playing a bigger rather than a smaller role under new Federal guidance in the coming years.

Market View: Wild Card Wednesday

Publicly traded equity and debt markets were first to register an impact from former President Trump’s victory in the US election, with commodity impacts muted as market participants evaluated the potential for shifts in supply and demand within currently active delivery windows.

The Trump campaign’s messaging on clean energy support has been mixed in recent months, but there is little doubt that the new administration will back away from the concept of an energy transition organized via emissions targets aligned with global goals.

The extent to which a promised “unleashing” of the US oil and gas sector can overwhelm the competitive generating economics of renewables and firmly established state and regional environmental regulation is still unclear. Promises to ease permitting and boost infrastructure largely did not turn into action under the first Trump term, but progress on either could accelerate rather than delay renewable energy deployment.

For project developers, the impact of higher import tariffs and an immigration crackdown that cuts the construction workforce are both the first order concerns: Tariffs are largely within the presidential remit, and changes could happen quickly once the new administration takes power.

Higher prices for foreign components before replacement domestic manufacturing is ready means compressed returns for many energy firms, though the heavy reliance on Chinese components for solar in particular has been reflected in hits to equity valuations in that sector since markets opened today.

Environmental markets eyeing a Trump presidential election victory are taking solace in the sustained commitment of states to pricing and managing environmental attributes.

Action in environmental commodities is already largely based on state and regional programs, with federal programs in recent years more often based on a blend of tax credits and long-range targets rather than compliance pricing programs.

The history of the last Trump administration was characterized by a contradictory revival in state-level compliance market ambitions, even as federal programs were either slowed or challenged.

On the compliance side, participation and outright price levels continued to surge in the US through the first Trump presidency. Pennsylvania, which as with this year voted for Trump in 2016, boosted its compliance program ambitions significantly in 2017, and prices for related RECs contracts have climbed since.

The voluntary environmental attributes market also picked up during the Trump years, as corporates concerned about the lack of US policy in an emissions-constrained global economy built positions and expertise through voluntary mechanisms.

The forward price curve for a number of environmental commodities tracked by Karbone remained in contango on the eve of the US election, and outright prices for many markets barely budged through the closing days of the tight campaign.

National CRS-listed voluntary RECs dipped slightly at the front and back ends of the curve since mid-October, but the 2029-2033 strip held steady.