Cheapest Energy Isn't Cheapest Power

A large data center that screens markets on the wholesale energy price alone is using the wrong number.

Once capacity, transmission, and tariff charges are included, the apparent ranking of US power markets changes materially. Wholesale energy across the seven markets in this benchmark runs from roughly 30 to 55 dollars per MWh. The illustrative recurring delivered-cost stack runs from about 40 to nearly 90 dollars per MWh.

Delivery-related charges can reorder the ranking

The light band above is wholesale energy. The dark band represents capacity, transmission, and other delivery-related charges spread across the load's consumption. The dark band is what fans the total.

In the displayed benchmark, ERCOT screens near the low end, around 41 dollars per MWh. SPP also appears inexpensive, but its resource-adequacy cost is not represented by a transparent centralized capacity price, so its total is less directly comparable. The Northeast and the constrained zones sit at the top: PJM around 65, CAISO near 79, New York City close to 87. A developer that ranks markets on energy price alone can pick a site that looks cheap and is not.

Capacity and transmission adders are high

Much of the spread comes from capacity and transmission costs, and several of those benchmarks are elevated or volatile right now. PJM's most recent capacity auctions cleared at their applicable caps, several times the level of two years ago. Capacity prices have also risen sharply or remained volatile in New York and MISO. How much of this is cyclical and how much is structural remains an open question, and a siting decision made on today's capacity number is partly a bet that the spike holds.

Some of the cost is manageable, some is not

Capacity and transmission exposure is not fixed. A load can lower it by where it sites, by the voltage and tariff class it takes, and by how its retail supply is structured. In ERCOT, a large load's transmission charge is set by its demand in four summer peak intervals, which a load can manage directly, though that mechanism is itself under review by the Texas regulator.

Other charges are not reduced simply by shifting consumption between hours. CAISO's Transmission Access Charge is assessed volumetrically on internal load, so moving the same consumption across hours does not reduce it. Fixed tariff charges and taxes behave the same way. Any credible cost estimate has to separate what a buyer can move from what it cannot.

Why it matters

For a 500 MW, 24/7 load, the difference between the cheapest and the most expensive market in this comparison is on the order of 200 million dollars a year, on similar wholesale energy. That is a siting and structuring decision, not an energy-price decision, and it is made before any capital is committed.

Methodology

The figures are an illustrative, standardized benchmark: a 500 MW, 95 percent load-factor load at transmission-level service, current market and tariff levels converted to dollars per MWh. They are different product types (auction capacity, bilateral resource adequacy, transmission-tag exposure, tariff charges), so the ranking is indicative, not a like-for-like price. It excludes interconnection and other one-time costs. New York is represented by NYISO Zone J (New York City), where capacity clears well above the statewide level. SPP has no centralized capacity market; its displayed benchmark does not assign a separate market-clearing capacity price and should not be read as implying that resource adequacy has no cost. Sources are the ISO capacity auctions, the ERCOT four-coincident-peak transmission tariffs on file at the PUCT, and the CAISO transmission access charge tariff.

All analysis by Tafel Power from public sources. Tafel Power applies this framework in confidential siting and delivered-cost assessments for large loads and infrastructure investors.