Dylan Seff, Head of Americas utilities and global sustainable energy, recently participated in a Q&A at CERAWeek discussing US Power Market Design.
With load growth, primarily driven by data center build out, leading to an impending supply and demand tightening over the next several years – Goldman Sachs Research estimates that power demand for data centers could increase by an eye-watering 165% by 2030[1] – the discussion focused primarily on the power market structure and its capability to solve for what lies ahead.
Planning for tightening supply and demand
As more data centers are built and the amount of power they require grows, power supply is becoming an issue, particularly in markets that have traditionally attracted clusters of data centers, such as Northern Virginia and Santa Clara in the United States.
Indeed, according to the IEA,[2] in 2023, overall capital investment by Google, Microsoft and Amazon, industry leaders in AI adoption and data center installation, was higher than that of the entire US oil and gas industry – totaling around 0.5% of US GDP.
Significant investment in the current infrastructure, as well as new build generation will be critical in meeting the increasing need for power. Both come with their own challenges which need to be addressed in order to adequately meet forecast demand.
Investment in current infrastructure
Investment in current infrastructure is needed to address – among other factors – the threat to grid reliability caused by greater demand on an already overtaxed electricity system; according to the World Resources Institute, 70% of the transmission lines in the US are over 25 years old, with many approaching the end of their 50-80-year lifespans.[3]
Expanding current transmission capacity would also ease concerns about system reliability, by enabling new build generation to interconnect and facilitating power transport to high demand locations.
Grid-enhancing technologies designed to add more carrying capacity to existing transmission lines is one solver. Some, like Dynamic Line Rating (DLR) or Ambient Adjusted Rating (AAR) increase the accuracy of line ratings, supporting increased utilization of existing transmission. Dynamic Line Rating (DLR) uses real-time sensor data for accurate power line capacity assessment, while Ambient Adjusted Rating (AAR) adjusts ratings based on ambient conditions like temperature, offering a less precise but simpler approach; both meet the requirements of, FERC Order 881 due to come into effect in July 2025.
Retrofitting existing transmission with flexible alternating current transmission systems (FACTS) also supports increased utilization of existing transmission by monitoring and analyzing power flow in real time so that the flow of power can be optimized.
New build generation
New build generation presents financing challenges; to achieve the debt service coverage obligations that are required to secure the financing necessary for new build generation, seven to ten years’ worth of cash flows need to be secured. Generator cash flows are typically derived from three products in each regional market:
- Energy,
- Capacity, and
- Ancillary Services
With forward sparks currently at all-time highs, the context for substantiating new build from energy is positive. However, capacity is currently only procured by the market operators for one to three years forward and is highly volatile, due to shifts in supply/demand fundamentals and regulatory churn. In fact, PJM’s most recent auction produced a tenfold price increase. This is too volatile and too short term to be a reliable revenue source for financing. Similarly, the ancillary services market is a short-term pricing market and is otherwise totally opaque in the forwards.
Revenue certainty is difficult to achieve from the combination of these markets. Consequently, financing new generation is challenging for all but nearly 100% equity providers.
Market structure is key
Currently generators bake in significant risk premiums; forced to make gas procurement decisions prior to knowing their power price and generation dispatch likelihood. This affects both the potential for new build generation and the day-to-day price volatility that operators need to contend with.
Vitol believes that better coordination between the gas and power markets could address this, with the added benefit of de-risking generator operations. Unaligned daily gas and multi-day power market timelines often challenge gas generator operators to make economically efficient fuel procurements. Particularly during extreme winter periods, when generators are forced to make risky and costly short term fuel procurement decisions that can either result in unburned gas if demand is less than expected; or substantial market penalties if they receive commitment instructions beyond expectations and under-procure. This is especially pertinent over holiday weekends where generation resources purchase gas in blocks for multiple days, which can mismatch with actual dispatch needs and lead to issues with gas availability and reliability.
It is also important to ensure pricing designs in the energy markets reflect the needs of the grid. Effective scarcity pricing mechanisms ensure that market prices reflect the reliability value of supply leading up to and during shortages. This is increasingly important as revenue adequacy uncertainty arises from higher proportions of weather-driven, zero-incremental-cost energy resources; with the ability to shift load by storing excess energy during off-peak hours (when electricity demand and prices are low) and then discharging that energy during peak hours (when demand and prices are high).
However, there is a temptation to constantly tinker in pursuit of the best market design which is not always aligned to the most efficient outcomes over the long term.
Project finance places a value on the ability to estimate future cash flows based on expected market conditions. For large capital projects, such as electric generation resources, this is challenging enough without frequent market design changes. Ultimately, market changes can do more harm than good by eroding certainty and stifling investment decisions.
Vitol’s expertise
In what is often a volatile and opaque market, Vitol offers a range of power solutions that can be tailored to each customers’ unique requirements; from gas packages that generators can use to hedge peak period fuel risk, to zero CI RNG behind the meter power generation.
BPPAs; a reliable supply of renewable energy with cost certainty
Offering the end-user a consumable supply of sustainable energy, the Block PPA (BPPA) is a unique offtake structure for renewable energy consumers:
- A fixed block supply of renewable energy and attributes which eliminate “settlement for differences” that come with traditional PPAs
- Physical renewable power delivered to your meter with customizable term and collateral structures
- Solar, coupled with storage, provides reliable renewable energy to customers aligned to their net zero needs; BPPAs take this solution one step further and remove price uncertainty for customers over a defined time period
Natural gas supply; helping ensure grid reliability
Vitol believes that natural gas will continue to play an important role in supplying the bulk power system:
- We understand the intricacies of disparate pipelines and storage facilities, key to a reliable fuel supply
- Owners of gas-fired generation benefit from confidence in supply, enabling them to stabilize their cash flows and invest in their facilities by entering into forward sales of energy and capacity
RNG; behind the meter power generation
RNG presents one of the few options to decarbonize data center energy consumption whilst also allowing for rapid build out:
- Fixed price zero CI gas blends present a unique value proposition
- Behind the meter power generation from natural gas is likely to be a major source of energy due to long lead times for new transmission and interconnection infrastructure
- RNG is the only way for new natural gas power generation to be decarbonized, with zero CI RNG supplied from blends of low-CI dairy RNG and fossil natural gas, to produce zero CI electricity
With customers like Meta already benefitting from Vitol’s power and pricing expertise, get in touch with our team to discuss your power needs.
[1] Goldman Sachs Research (2025)
[3] World Resources Institute (2025)