Corporate America is scrambling to hire energy traders as the AI boom pressures electricity costs
As the race for AI development booms, demand for power has soared and is expected to grow in the US at a rate five to 10 times faster over the next 10 years than in the previous decade. That demand, in turn, is set to make electricity more expensive, and more difficult, to acquire.
To help stave off a shortfall and manage their exposure to a fluctuating market, major US companies are rushing to get into the increasingly complex business of energy trading.
Some of Big Tech’s largest players have entered the arena, with Meta (META), Microsoft (MSFT), and Apple (AAPL) all receiving licenses by the Federal Energy Regulatory Council to buy and sell wholesale power contracts as they seek to manage their intense energy needs.
But it’s not just tech anymore. In late November, the Walt Disney Company (DIS) posted a job listing for an energy trader to purchase and schedule power.
Orlando, Florida, USA – February 9, 2022: A Walt Disney World entrance arch gate in Orlando, Florida, USA. Walt Disney World is an entertainment resort complex. ·JHVEPhoto via Getty Images
“For a company that’s either a big source of power demand or power supply, you have risk, you have power market vulnerability,” Rob Gramlich, the director of energy consultancy Grid Strategies, said. “A [trading] function is really a way to mitigate your risk.”
Contract terms that a company might strike with a utility company were looser when demand was lower. But as the market has tightened, utilities have locked down their exposures and are implementing new policies, such as requiring the company purchasing electricity to agree to certain quantities regardless of how much they’ll actually use.
Say a tech giant building a data center estimates it will use 2 gigawatts of power. The local utility might agree to provide that power, but only if the tech company pays for 1.5 GW up front. If its actual needs end up being only 1 GW, the company is paying for an extra 500 megawatts of power it doesn’t need.
Instead of having to eat the loss, an energy trader employed at this firm could go to the open market and sell that power to another buyer, covering the cost.
The average price for electricity in the US in September was 7% higher than a year prior, according to the most recent available data from the Energy Information Administration, which releases electricity numbers on a two-month delay. The price of natural gas (NG=F), one of the key input metrics for electricity cost, has also been on a tear, up more than 60% since the same time last year.
With prices rising so quickly, companies that consume a large amount of power, like Microsoft or Disney, have a strong incentive to sign long-term contracts locking in a stable, market-insensitive price for their electricity.
In the same way that Starbucks uses futures contracts to lock in long-term fixed costs for coffee beans and reduce its exposure to market fluctuations, a company like Disney can do the same for power used at its parks.
On the flip side, traders can also monitor the company’s needs to optimize their power draw, selling a little excess here, buying a little extra there.
At Disney, the energy trader will be responsible for “short-term load forecasting” and “[purchasing] electricity on an hourly and daily basis” while also managing longer-term “power purchase agreements,” according to its job listing.
For Big Tech firms, this function isn’t quite new amid the AI boom.
Apple and Microsoft have been federally authorized to trade wholesale power since 2016 and 2021, respectively, and Meta is just the newest Big Tech entrant to gain federal authorization.
Microsoft told Yahoo Finance that as it adds new power to the grid, the company “may need to sell some of the additional electricity supply to the grid as it is generated,” and Meta said energy trading will enable the company to interact with the market more directly and increase flexibility. Apple did not respond to a request for comment.
But the market has been growing.
Google is hiring multiple roles in its “energy market development” division, and Oracle is hiring energy risk managers. The data center construction company Digital Realty (DLR) has added roles in energy origination and procurement, where the candidate would be in charge of sourcing new power deals.
Disney’s energy trader will work for Reedy Creek Energy Services, a Disney subsidiary that operates the electric grid and transmission systems for the district outside Orlando that covers Walt Disney World, called the Central Florida Tourism Oversight District. Disney did not respond to a request for comment.
The process isn’t without potential hazard. If a company locks in an agreement to buy electricity at a certain price, and then the actual underlying price drops, they might be stuck paying an above-market price, spending more money than it needs to.
But trading also gives them more control than they would otherwise have.
“If you’re already exposed to the market, either on the supply side or the demand side, then you’re not really adding to the risk by doing power marketing,” Gramlich told Yahoo Finance.
Instead, “You could potentially be reducing the risk.” Corporate America is starting to bet that the gamble is worth it.
Jake Conley is a breaking news reporter covering US equities for Yahoo Finance. Follow him on X at @byjakeconley or email him at jake.conley@yahooinc.com.
Leave a Comment
Your email address will not be published. Required fields are marked *