ES #120: 2025's Power Market Questions and Trends

Energy Shots #120:

Energy Shots #120 brings the final installment of the three-part mini-series on notable infrastructure, fundamental, and geopolitical themes for global energy markets in 2025. Our first two reports highlighted changes to crude processing infrastructure and potential geopolitical impacts to global crude supplies.

Today’s ES takes a look at several trends to watch and questions to answer for US power markets as we prepare for a second Trump administration, shifting regulatory priorities, and predictions for rapid load growth from unfamiliar sources.

Load Growth: Artificial Intelligence and EVs

Beginning A New Era of Load Growth?

US grids are expected to begin a new cycle of rapid load growth from industrial electrification and emerging technologies like supercomputing/AI, data centers, and EVs.

• The North American Electric Reliability Corporation (NERC) released updated guidance in December 2024 that showed 10YR peak load and energy demand are expected to increase at the fastest rate in at least two decades. NERC’s aggregate winter peak demand forecasts are growing at the fastest pace since the group began modeling reliability risks in 1995.

According to demand forecasts submitted by US planning areas to the Federal Energy Regulatory Commission (FERC) via Form 714 and these planning area’s subsequent 2024 updates, nationwide peak electricity demand is expected to increase by nearly 16% by Summer 2029.

• Notably, 2029 forecasts submitted by these planning areas in 2022 predicted less than 3% growth — reinforcing the magnitude of uncertainty surrounding AI demand, data center development, and EV adoption rates.

• Nationwide demand growth is led by regions with high data center adoption and electrification of sectors like oil and gas.

FERC filings show a similar shift in expectations for nationwide total electricity consumption by 2029, with 2024’s forecasted growth rate more than tripling from grid operators’ expectations in 2022.

• FERC filings show total US energy demand is expected to increase from 4,242 TWh in 2024 to 4,773 TWh in 2029 — a 398 TWh increase from 2029 expectations according to 2022 FERC filings. As shown below, data center hotspots PJM, ERCOT, and MISO are responsible for the majority of this increase.

Emerging Technology: AI Adoption and IRA EV Subsidies

Electric vehicle (EV) adoption could face headwinds in 2025 as the new Trump administration targets EV tax credits under the Inflation Reduction Act, particularly after the National Bureau of Economic Research (NBER) released research that showed 75% of the IRA’s EV subsidies served consumers who would have purchased an EV without incentives, thereby increasing the government’s spend per incremental EV to $32,000.

Concerns about an AI bubble are more apparent in media coverage. However, anecdotal evidence shows real-world adoption and use-cases are growing rapidly. Concrete evidence in 2025 will likely determine the sustainability of investment appetite in the generation resources required to meet near-term load growth from artificial intelligence. Generation resources are covered in more detail below.

Generation Resources and Capacity

A Transition Away From ‘The Energy Transition’

To align with the requirements of emerging sources of large load like hyperscale data centers, investment priorities have shifted away from reducing emissions to reducing costs and improving reliability.

• FERC’s November 1st technical conference on large co-located loads showed anecdotal evidence of these shifting priorities. ‘Cost’ and ‘reliability’ were mentioned 89 and 74 times, respectively. ‘Sustainability’ and ‘carbon’ were only mentioned 3 and 2 times, respectively.

Concerns about reliability and cost are amplified by coal-fired generation retirements in regions that anticipate substantial load growth, such as PJM Interconnection.

• According to EIA form-860 data, total US coal-fired generation declined by over 76 GW between 2016 and 2024 and is expected to fall by another 38 GW if planned retirements proceed as scheduled between 2025 and 2029.

Long-Term Nuclear, Near-Term Natural Gas

Recent announcements from tech giants like Amazon, Microsoft, and Meta show significant long-term interest in new nuclear generation. However, as recognized by these companies, the United States’ extended development and regulatory timeline for nuclear capacity makes the technology incompatible with near-term load growth.

• Renewable intermittency is incompatible with the steady-state, 24/7/365 supply attributes required by hyperscale data centers.

• Natural gas remains the leading candidate to satisfy near-term cost and reliability requirements of artificial intelligence, supercomputing, and data centers.

• Concrete evidence of artificial intelligence adoption and its effects on load growth will likely determine whether tech giants make the leap from ‘energy transition’ sentiment surrounding carbon-based fuels to bets on cost and reliability.

The Fate of Inflation Reduction Act Renewable Subsidies

US generation capacity in interconnection queues reflects the IRA’s renewable-centric subsidies with an outsized share of intermittent generation resources like solar and wind that, as noted above, are poorly-suited to meet the reliability requirements of top emerging sources of large load.

• The second Trump administration will scrutinize and could scrap large portions of the Inflation Reduction Act, including production and investment tax credits supporting investment appetite in onshore/offshore wind.

2025 Takeaways

1. Risks to the upside for policymakers’ demand expectations.

2. Reliability and price risks are still not reflected in the US regulatory landscape.

Go Deeper:

• Demand is Infinite

• AI’s Two Power Problems

• FERC Rejects Amazon Nuclear-Data Center ISA

• The Top Sources of Load Growth Across N. America

• US Interconnection Queues and Planned Capacity

• Crossing the Air Conditioning Gap

• The New Economics of Power Markets

• EV Subsidies & Stagnating Sales

See you next Sunday.

ES.

This commentary contains our views and opinions and is based on information from sources we believe are reliable. This commentary is for informational purposes, should not be considered investment advice, and is not intended as an offer or solicitation concerning the purchase and sale of commodity interests or to serve as the basis for one to decide to execute derivatives or other transactions. This commentary is intended for Mobius clients only and is not considered promotional material.