9 Takeaways from the JP Morgan Chase Energy Study You Won't Want to Miss

On March 4th, JP Morgan Chase released its 15th Annual Energy Paper. The report, written by Michael Cembalest, is a 55-page analysis with hundreds of graphs and charts on the state of the energy industry.

It spans most aspects of the energy industry, discussing costs for wind and solar, conventional fuels, electrification and heat pump adoption, a status update on the deindustrialization of Europe, and the use of green hydrogen.

Here are the nine takeaways we found most interesting from the study, hereafter referred to as the JPMC report.

1. Wind and Solar Prices Continue to Rise

Remember when we were told that wind and solar would always get cheaper? Well, that hasn’t been the case since 2018 for wind or 2020 for solar. According to the JP Morgan Chase Report, power purchase agreement (PPAs) prices for wind have more than doubled since 2019, and solar PPAs are near $60 per megawatt hour.

Prices are rising due to US tariffs on Chinese solar panels, a tripling of insurance premiums in MISO, ERCOT, and SPP due to weather events, supply/demand gaps due to permitting delays, higher interest rates, and increased corporate demand for green power. Keep in mind that PPAs almost always show the subsidized cost of an energy source, so in reality, the cost of these resources is even higher.

As we have written about before, these rising price trends are a key reason why we believe the use of the National Renewable Energy Laboratory’s (NREL) Annual Technology Baseline in energy modeling amounts to utilities and “renewable” special interest groups fudging their numbers to justify massive capital spends on wind, solar, and battery storage technologies.

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2. Battery Costs Are Coming Back Down

Battery storage prices are falling again after a price spike in 2022. According to Energy Storage News, the main drivers of the fall are cell manufacturing overcapacity, economies of scale, low metal and component prices, a slowdown in the EV market, and increased adoption of lithium iron phosphate (LFP) batteries, which are cheaper than nickel manganese cobalt (NMC) batteries.

In other battery news, global storage capacity is growing quickly, with the vast majority of batteries being installed in China, the United States, and Germany.

3. U.S. Transmission Line Growth is Far Below DOE Targets

As our friend Robert Bryce frequently notes, the “energy transition” depends on massive expansions of our high-voltage transmission grid, but capacity additions are falling, and per-mile costs and utility product costs are soaring.

The JPMC report notes that annual additions of transmission lines are far, far below the levels envisioned by the Biden Administration’s Department of Energy, as you can see in the graph below.

Rather than increasing, transmission line growth has fallen as projects in the Electric Reliability Council of Texas (ERCOT), Southwest Power Pool (SPP), and the Midcontinent Independent System Operator (MISO) regions were completed. More interregional transmission lines have been approved by MISO and PJM, but given the delays inherent with building new transmission lines, when or if those projects come online is an open question.

In our view, the idea that we need a massive buildout in interregional transmission infrastructure is incorrect. It is necessary to add more wind and solar generators, but that doesn’t mean that it is imperative that we build it when other sources of electricity, like new natural gas plants, would require far less new transmission and deliver more reliable, affordable electricity—if you can get a turbine.

4. Wind and Solar Don’t Replace Reliable Capacity

We understand we are preaching to the choir here, but it is nice to see the JPMC report acknowledge just how ineffective wind and solar are at reducing our dependency on dispatchable generators.

The graph below from the report shows that for every megawatt of wind or solar installed in various regions, it only offsets 10 to 20 percent of gas capacity.

Making the numbers easier to understand, installing 10 MW of wind or solar in MISO would only offset the need for natural gas capacity by 2 MW. In the Southeast, adding 10 MW of wind or solar would only offset the need for 1 MW.

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Of course, even this can overstate the reliability contribution of wind and solar due to wind droughts in MISO. Furthermore, utilities in the Southeast are often winter peaking systems, and the peak demand for power usually happens at night when the sun isn’t shining, rendering the solar capacity useless for meeting that demand.

5. MISO and PJM Are Concerned About Reliability

MISO continues to see its reserve margin dwindle as its margin for error sits at just four percent. The JPMC report notes MISO’s warnings of “serious challenges to grid reliability due to increased exposure to wind/solar intermittency, having averted a capacity shortfall in 2023 only due to postponement of planned thermal capacity retirements.”

MISO also warned of adverse consequences from prior EPA proposals to require coal plants, some existing gas plants and new gas plants to (a) retire by a certain date, (b) retrofit with carbon capture or (c) co-fire with green hydrogen; MISO has cited cost and technological readiness issues as major constraints.

PJM is also sounding the alarm as it has increased its projected capacity needs by 40 percent in its Long Term Load Forecast, with PJM’s President saying, “We need capacity… a lot of capacity”. PJM’s report concluded that as demand growth and thermal resource retirements accelerate, the region may experience a shortfall in power supply as early as 2026/2027.

6. Fossil Fuels, Nuclear, and Hydro Power U.S. Data Centers

The JPMC report notes, “Hyperscalers will probably have to walk back green power commitments and run data centers primarily on natural gas, as they have been. The pie chart shows power consumption of US data centers based on their respective locations, their MW of maximum power consumption and the grid mix in that state.”

As of 2024, 43 percent of U.S. data center power consumption was provided by natural gas, 17 percent by coal, 19 percent by nuclear, 9 percent by wind, 6 percent by solar, and 7 percent by hydro.

This makes a lot of sense because we have yet to hear of data centers that are happy to power their operations intermittently. It’s also why data centers are seeking to build hundreds of MWs of diesel generators on-site to limit supply interruptions.

7. High Electricity Prices Impede Electrification

Wind and solar advocates argue we must rapidly “electrify everything” by using electric vehicles and converting our home heating systems from natural gas, propane, or fuel oil to electric heat pumps. The problem? Doing so costs much more than using natural gas to keep warm in winter.

The JPMC report states:

"The high cost of electricity compared to natural gas (particularly in places without a carbon tax) is another impediment to electrification that is not easy to solve since this ratio reflects relative total costs of production and distribution."

Natural gas remains much more affordable than using electricity for home heating in states throughout the country, and even heating oil and propane are more affordable than electricity on a nationwide basis.

One caveat here: this graph shows the price on an energy-equivalent basis, but the whole point of heat pumps is that they transfer heat at higher performance levels than electric baseboard heaters, which is supposed to reduce homeowners' costs.

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However, Xiao Wang on Twitter has done a great job of chronicling how residents in New England (especially those in Massachusetts) are paying much more for their heating after switching to heat pumps. This has led groups like Canary Media to suggest that the answer is subsidized electricity rates for heat pumps. Brilliant!

8. Green Deindustrialization Continues Apace in Europe

The JPMC report notes: “Europe is the world leader with respect to the pace of decarbonization. However, Europe is paying a steep price for this transition. Its energy prices have risen from 2x to 4x US levels, and its residential electricity prices are now 5x-7x higher than in China and India.

“There have been many articles on European deindustrialization due to rising absolute and relative energy costs. The spike in relative prices is not just a function of the renewable transition; higher energy prices also reflect Europe’s transition from pipeline Russian gas to more expensive imported LNG. It will be interesting to see if an end to the Russia-Ukraine war results in resumed Russian pipeline gas flows to Europe or not.”

As Doomberg noted in their piece, Project Porcupine, Europe’s irrational energy policies will make it difficult to increase its military might. The JPMC report concurs, stating “European defense capabilities are only 10% of US levels. Higher energy prices, intermittent power and deindustrialization are not going to make the task of European rearmament any easier.”

The report also touched on Germany’s coming Energieweimar. Despite Deutschland’s heavy investments in wind and solar, the country has become a net importer of electricity. Long story short, installed power capacity continues to rise but actual generation is falling. The same story is unfolding in the United Kingdom.

9. Grim Realities for the Green Hydrogen Hype Train

Despite heavy subsidies and much hype, the so-called green hydrogen industry is floundering. Quarterly mentions of hydrogen project delays and cancelations are skyrocketing in the news and in company disclosures.

The report included this quote, with the caveat that it somewhat exaggerates the plight of green hydrogen:

"Electrolyzers, which do not exist, are supposed to use surplus electricity, which does not exist, to feed hydrogen into a network that does not exist in order to operate power plants that do not exist. Alternatively, the hydrogen is to be transported via ships and harbors, which do not exist, from supplier countries, which - you guessed it - also do not exist.”

According to the report:

“Hydrogen has an “original sin” problem: early estimates of electrolyer costs were too low. It started with an influential IRENA paper in 2020 estimating electrolyzer costs at $750 per kW. The European Energy Transitions Commission now concedes that costs are far higher, at least when sourced from Western manufacturers; the latest estimates for 2024 range from $2,100 to $3,200 per kW. This revised assessment had led to a 5x increase in Western 2030 electrolyzer cost projections from BNEF and the Hydrogen Council relative to initial projections.”

This quote pretty much sums up the “energy transition.” Boosters of unproven and expensive technologies assure us that their preferred energy sources are already cheaper, or will soon be much cheaper, than the reliable, affordable technologies we already use. Within a few years, the promises fail to materialize, and they move on to some other unicorn technology, and the hype cycle repeats itself.

Some grim realities for the industry:

“Only 12 percent of green hydrogen projects scheduled for completion by 2030 have identified offtake agreements, and only 5 percent of projects scheduled for completion by 2030 have reached the final investment decision stage. It gets worse: of the projects that have offtake agreements, only 11 percent of that amount represents binding contracts. So…just 1 percent of all projected green hydrogen production has a binding offtake agreement.”

A key reason for the problems plaguing green hydrogen is the cost. Even after assuming optimal electrolyzer utilization rates (which won’t materialize in the real world if they are, in fact, powered by wind and solar), the cost is still massive. In Texas, green hydrogen production is around $6.50 per kilogram (kg). In New York, the cost is around $7.50 per kg.

It takes approximately 7.4 kg of hydrogen to produce 1 million British thermal units (MMBtu) of energy, and it takes 10 MMBtus to produce one megawatt hour (MWh) of electricity in a combustion turbine power plant. This means the fuel cost of green hydrogen is approximately $481/MWh in Texas and $555/MWh in New York. At that price, it’s no wonder the industry is hitting hard times.

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Conclusion

There is a lot to digest in the report, but the long and short of it is that the so-called energy transition is hitting the brick wall of reality. Let’s hope policymakers come to their senses and end the subsidies for wind and solar so we can get back to rational energy policies.

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