It’s November. That means ski season is just around the corner and a only a handful high action weeks remain in the year (accounting for US Thanksgiving and the holiday season).
A few themes and questions on my mind as we kick-off the month:
Load growth: optimism meets realism
Load forecasts all point to sustained growth for years to come (after over a decade of stable demand). But sentiment differs by industry, even as forecasts shift towards a more conservative outlook. Which industries within the energy sector will be most/least surprised by the ultimate pathway?
Data center disconnects: The “Warm Shell” shell problem
Data centers are the flagbearers for load growth. With trillions (with a “T”) of capex expected over the next several years, the race is on to find and solve the sector’s constraints. Today the constraint is access to “Warm Shells”, but the constraint will move and tomorrow it will be somewhere else. Who wins and who losses when it does?
Investment “circularity” raises ghosts of bubbles past. AI will likely be the defining technology of our time. Predicting what that means for energy demand (and compute and hardware) is still difficult as model and hardware efficiencies work against expanding capabilities and the explosion in user demand. Will all the commitments look like foresight or folly?
Gas power is more Interesting than “Gas-to-Power”
Continued development of technologies like solar (utility scale and behind-the-meter) and BESS mean fewer dispatch hours on average for gas fired assets, even with load growth. Still, the value of that capacity, through capacity markets and premium priced hours, means rising values for many gas fired generation assets. Gas producers have found it difficult to take advantage – is that set to change?
OBBBA renewable credit cut pain
Many queued renewable projects will not meet economic thresholds without tax credits, but some will. Without credits and in to meet required capacity broadly, local dislocations are sure to emerge: Where will prices - PPAs, RECs, forwards etc. – need to adjust?
“CO2-to-Oil” is the sleeper bet: real economics accessible to the oilfield
As “Inventory” continues as a dominant E&P theme, any pocket of highly economic (low-breakeven) resource should draw attention. Supported by the 45Q tax credit, CO2 EOR can deliver some of the lowest breakeven oil opportunities in the L48. Access to CO2 (ironically?) is one of the biggest constraints to unlocking this opportunity. Who has CO2 access and acreage to take advantage?
Geothermal warming up
Geothermal, specifically EGS and AGS are something to watch. Recent land sales point to large swaths of acreage being locked up in anticipation of a breakthrough. Meanwhile, the pace of cost and performance improvements over time continues to impress. Will geothermal progress allow it to outcompete nuclear as the “low cost, low-carbon baseload” resource?
Credit stacking still builds “fat stacks”
The value of “energy” increasingly mirrors the energy trilemma: The value of the energy itself, the value of it’s reliability/dispatchability, and the value of it’s environmental attributes. Some of the best economics we see are from assets that can stack revenue streams from several attributes (where the value of the energy itself is a minor contributor). Where is this working following the OBBBA?