Why Should Delaware Care?
Public concern has been growing rapidly over the cost of energy bills, and those prices are set to rise this summer. Part of the reason for that increase is a growing imbalance between energy generation capacity and the demand for power.
The price of electricity in Delaware is set to rise again this summer, even after uncharacteristically high power bills recently sparked consumer outrage across much of the state.
Officials from a state regulatory body that monitors the energy markets said they expect the average Delmarva Power residential customer to see a 7% increase starting in June. That would equate to about $10 on the median bill.
Why Delaware has seen such a drastic spike in energy prices, and therefore consumer billing, is a complicated question. But leaders who testified before the state legislature and Public Service Commission last month pointed to a regional energy network that has seen booming demand for electricity while at the same time generators have closed and their replacements have been delayed.
It comes down to a supply-and-demand equation, where demand is rapidly growing with extreme weather patterns, electric vehicles, and internet data centers.
Meanwhile, supply has stagnated.
During a Senate hearing last month, an executive for Delaware’s regional power grid operator noted that several power plants have been proposed to be built across the region and cumulatively could produce enough electricity for roughly 40 million homes.
“The fact that we’ve got 50 gigawatts of resources that are through the generator interconnection queue, but haven’t been putting steel in the ground, is concerning to us,” said Asim Haque, the senior vice president for governmental and member services at PJM Interconnection, at the Feb. 24 hearing.
The reasons for those delays are a mix of supply chain challenges, project financing limits with higher-than-average inflation, permitting hurdles and public policy decision-making, Haque said.
Each may be easier to solve on its own, but the confluence of factors mixed with greater modern demand has led to a spike in the cost of power.
Energy prices rise
The price of power that is turned over to consumers on their monthly power bill is the result of an annual forward-looking power auction. The prices obtained in these auctions, run by PJM, are determined by the demand for power and the available capacity for generating it.
Both have been exacerbated in recent years.
Total installed capacity in the PJM network has fallen 4% over the last five years, shedding about 8,000 megawatts – or 8 gigawatts – of potential power. That’s due to the closing, or “decommissioning,” of primarily coal, oil or natural gas power plants around the region.
While the coal-powered Indian River power plant closed last week in Millsboro, erasing 410 megawatts of potential capacity, it was dwarfed by the closures of a coal-fired plant in Pennsylvania and a gas-fired plant in Illinois two years ago, which cumulatively erased nearly 3 gigawatts of power.
Meanwhile, a backlog of replacement projects – primarily solar and wind projects – have been delayed in coming online, leading to a drop in expected capacity. Part of that delay was attributed to an immense number of new applications for relatively small solar projects, but reforms have ensured that projects move through the review queue within two years.
That falling capacity was also met by rising demand, which is projected to further grow by 20% over the next decade.
That growth stems in part from a growing number of data centers in states like Ohio and Virginia. These facilities, which house thousands of computer servers, underpin tech advancements like artificial intelligence, but eat up huge sums of power.
If sufficient capacity is not available to meet their needs, it can drive up the cost of power borne by all users in the grid.
That reality led to a nearly six-fold increase in the cost of power for the PJM network last year, with total contract cost for power rising from $2.2 billion in 2023 to $14.7 billion in 2024.
That will result in record-high energy costs for Delaware, where the Public Service Commission recently accepted a rate structure for Delmarva Power that will increase the average consumer’s bill by $10 a month starting in June.
“For what it’s worth, misery loves company. All surrounding states are achieving prices here that are consistent with the high prices you see here,” James Letzelter, an energy consultant, explained to the Delaware Public Service Commission at their Feb. 19 meeting.
Cost for producers also rising
One reason why producers are bidding higher prices for their power is because they are seeing higher costs themselves.
In the wintertime, natural gas is a major driver for both electric power and home heating. About half of American homes have gas-powered home heat, but that figure is only four in 10 in Delaware. Another two in 10 have electric heat, which has been subject to the large price swings for supply.
In the PJM Interconnection – or the regional power network that serves 65 million people in 13 states and the District of Columbia that includes Delaware – about 40% of power is created by burning natural gas.
On Tuesday, the price of natural gas reached a more than two-year high of $4.30 per million British thermal units. The new tariffs on Canada led to a retaliatory tariff on Canadian natural gas to America, coupled with a colder forecast in March and rising oil production in the Persian Gulf have led to that rise.
“These energy prices are largely set by gas prices, because gas-fired units set the locational marginal price in PJM for the majority of the hours of energy delivery. So there should be a tight correlation between energy prices and the underlying gas prices, which is the biggest source of the cost of production,” Letzelter said.
Likewise, many Delmarva Power customers have experienced sticker shock in the last two months over the cost of delivery fees for grid infrastructure. Trump administration tariffs on steel and aluminum could be a significant blow to power companies, many of which have costly transformers and transmission towers to be replaced, according to the Wall Street Journal.
According to consultancy Wood Mackenzie, only about 20% of transformer demand can be met by the domestic supply chain and prices for that equipment have already risen an estimated 70% to 100% since January 2020 because of inflation for raw materials such as electrical steel and copper.
Renewable policies have impact
Capacity has fallen in recent years, in part, because of state and federal policies that have pushed companies to close carbon-emitting plants powered by coal, oil or natural gas in favor of renewable energy resources like solar, wind and biogas.
Renewable energy requires less overhead to create power because workforces aren’t needed to fire plants, nor are their operation dependent on volatile fuel prices. That has led many for-profit operators to choose to shutter inefficient coal, gas and oil plants in favor of renewable projects.
But renewable energy is not a 1-1 solution, because while gas or coal plants can run around-the-clock to produce power, the sun only shines for less than 12 hours and winds come and go.
Diane Holder, a vice president of ReliabilityFirst, the organization that monitors grid reliability to ensure consumers aren’t hit with brownouts, told legislators that substantially more megawatts of solar, wind and battery capacity are needed to deliver the same amount of energy as their carbon-based counterparts. In some cases, that might mean having 700 megawatts of renewables to replace 100 megawatts of coal power to ensure around-the-clock usage.
“Unfortunately, new additions are not keeping pace with the retirements,” she said in the Feb. 24 hearing. “As those base load plants retire, not only are we not keeping pace with that 7-1 in some pockets of the grid, we’re not even keeping pace on a 1-1 basis. This is a big concern. We are losing supply faster than we’re adding it, and with significant load growth expected, maintaining that balance between supply and demand is just getting more and more difficult to do.”
A PJM study identified regulations from the U.S. Environmental Protection Agency as well as the states of Illinois, New Jersey and Virginia that have pushed more power plants offline, according to Haque. Notably, PJM does not believe that Delaware’s Renewable Portfolio Standards have pushed resources offline, which is counter to assertions by Delaware legislative Republicans regarding the recent closure of the 410-megawatt Indian River coal plant in Millsboro.
(The Indian River power plant’s owner, NRG, asserted in regulatory filings that it wanted to close the nearly 70-year-old plant because it was “uneconomic” and required millions of dollars in improvements and repairs. Public advocates criticized NRG’s push for tens of millions of dollars a year to keep the plant open for grid reliability needs, while having written off its repair needs to the benefit of shareholders for years.)
“Where things start to get hairy for us is that we are forecasting quite a few retirements between now and 2030, and a lot of them are driven by policy,” Haque added.
About 5 gigawatts of power, nearly all from carbon sources, are scheduled to be taken offline in the next three years, which would further exacerbate price concerns if additional power is not quickly brought online.
Notably, offshore wind resources, such as the US Wind project that would bring more than 6.6 gigawatts of power to the grid, have been delayed by local opposition and site development issues. Additional opposition by the Trump administration could further delay or end development of those projects.
Lawsuit brings some relief
After the record-breaking prices returned in the 2024 PJM energy auction, Pennsylvania Gov. Josh Shapiro sued PJM, arguing that its failure to address its project queue led to exacerbated price hikes.
In settling the lawsuit in January, PJM agreed to set a price cap and floor on the next two energy auctions. The most that producers would be able to receive at auction would be $325 per megawatt per day, or a 20% increase from the current year, while the least would be $175 per megawatt per day, or a 35% decrease. The previous price cap on auctions was more than $500 per megawatt per day.
The settlement will offer some prospective relief to consumers, but unless new capacity can enter the grid quickly, consumers are likely to continue seeing rising energy prices.