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Data Center Overload // Critical Mineral Supply // Energy Grids in Modern Warfare

Today we dive into recent reports on data center energy demands, critical mineral oversupply, and VRE impacts on grid buildout.

FERC Report: Data Centers Drive 2.7% Surge in U.S. Power Demand

Amazon Datacenter, Boardman, OR

The Federal Energy Regulatory Commission (FERC) has released its summer assessment, highlighting a significant surge in power demand driven by data centers. U.S. electric demand is projected to increase by 2.7% this summer, reaching 1,487 TWh, with data center load growing from 19 GW in 2023 to nearly 21 GW this year. By the end of the decade, this figure could skyrocket to 35 GW. Northern Virginia, Dallas, Chicago, Phoenix, and Northern California remain the primary data center markets, but development is expanding into over 20 metro areas. This surge is pushing utilities to rethink their strategies and invest heavily in grid upgrades to prevent potential blackouts.

The financial implications are significant. Companies like Siemens (SIEGY) and Schneider Electric (SBGSF) stand to gain from these infrastructure investments as they provide advanced grid management solutions. Meanwhile, the policy landscape is evolving rapidly. Regulators are balancing the need for a reliable energy supply with the push for sustainable practices. States like California and Texas are leading with grid modernization initiatives, but the pace of change must accelerate to keep up with this digital revolution. Despite the increased demand, wholesale electricity prices are expected to remain stable or decrease in most areas due to lower natural gas prices, except in New England.

IEA: Critical Mineral Oversupply Shapes Market Outlook

Copper Mines in Chile

The International Energy Agency (IEA) has released its latest Global Critical Minerals Outlook, revealing a rollercoaster ride for the battery materials market. Recent surges in investment have created an oversupply of critical minerals like lithium, causing prices to plummet—lithium spot prices have dropped by 75%, and battery prices have fallen 14% year-over-year. This has led to a short-term inventory glut, creating challenges for producers and shaking investor confidence. Jervois Global's cobalt mine project in Idaho, once a beacon of hope for domestic production, has been suspended due to the unprofitability at current prices. Similar struggles are seen globally, with projects on hold in places like Australia and South Carolina.

The IEA warns that this oversupply is temporary as mineral demand for clean energy technologies is set to double by 2030. To meet this future demand, an $800 billion investment in critical mineral mining is needed. Despite U.S. efforts to bolster domestic supply chains, China remains dominant, controlling 85% of global battery cell production. Companies like Albemarle Corporation (ALB) and Arcadium Lithium (ALTM) are pivotal in this sector, but face a tough market. Policymakers are urged to diversify supply chains and explore alternative battery chemistries and recycling initiatives to stabilize the market and secure a resilient supply chain for the energy transition.

VRE Projects Threaten Investment in Large-Scale Power Generation

Wind / Solar Push Costs to 0 and Threaten Profitability of Reliable Energy Creators

Germany’s over-subsidization of wind and solar power has turned its grid into a cautionary tale, creating economic instability and reliability issues. On windy and sunny days, electricity prices can plummet to zero or even negative, forcing Germany to pay other countries to take its excess power. This scenario has left traditional power producers like RWE (RWE.DE) and E.ON (E.ON.DE) struggling to remain profitable and hesitant to invest in reliable energy infrastructure

For the U.S., over-subsidizing variable renewable energy (VRE) could jeopardize the financial health of key power companies like Duke Energy (DUK), Southern Company (SO), and NextEra Energy (NEE). If these firms are disincentivized to invest due to artificially low electricity prices from excessive VRE, the U.S. grid could face similar instability. These companies play a crucial role in maintaining base load power and grid reliability. Without balanced investment, the U.S. risks undermining its energy infrastructure, leading to higher operational costs and potential blackouts when renewable sources fail to meet demand.

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Conversation Starters

  • House Republican Panel Roasts Biden for Energy Failures

    A new House committee report, released mid-last-week slams President Biden's green energy agenda, claiming it has hiked gas prices, threatened grid stability, and added $1 trillion in regulatory costs. Gas prices jumped from $2.39 to over $5 per gallon under Biden, now at $3.54. Critics blame the cancellation of the Keystone XL pipeline and a moratorium on new oil and gas leases. The report argues that Biden's push for renewables and new power plant regulations could lead to power shortages and higher energy costs. Despite the criticism, Biden insists these policies are vital for tackling climate change and creating jobs, aiming to cut greenhouse gas emissions by 50% by 2030.

  • Senate Rolls Back Gas Furnace Rules

    In a 50-45 vote, the Senate passed a resolution to overturn a DOE rule mandating higher efficiency for gas furnaces, arguing it unfairly picks winners and losers in the market. Authored by Sen. Ted Cruz, R-Texas, the resolution contends the rule, which bans non-condensing gas furnaces by 2028, will hike consumer costs. Critics draw parallels to the 1980s CAFE standards, which increased vehicle costs and limited choices.HVAC giants like Lennox International (LII) and Carrier Global (CARR) could see a windfall as consumers are forced to upgrade to more efficient models, boosting sales of their condensing gas furnaces. The resolution now heads to the House for a vote, expected in the coming weeks. The Biden administration plans to veto the rollback, emphasizing energy conservation and cost savings, but the debate underscores the clash between green initiatives and market freedom, with significant impacts on the HVAC industry.

  • Modern Warfare Targets the Energy Grid

    The Ukraine conflict underscores the strategic importance of energy grids in modern warfare. Russian attacks have repeatedly targeted Ukraine's power infrastructure, causing widespread blackouts and chaos. These assaults aim to disrupt daily life and weaken national resilience, proving that control over the energy grid can yield significant tactical advantages. As energy systems become critical battlefields, investing in robust, resilient infrastructure is essential to withstand such threats.

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