Which Utility Stocks Will Outperform During Summer's Heatwaves?
Summer Heat Wave Tests U.S. Power Grids: A Tale of Extreme Conditions and Strained Resources
Brace yourself, America! The upcoming summer heatwave is set to push power grids to their limits, as record-breaking temperatures and humidity make their way across the country.
According to the North American Electric Reliability Corporation's (NERC) 2025 Summer Reliability Assessment, the U.S. is predicted to consume 10 gigawatts (GW) more electricity this summer in comparison to last year. That's more than double the increase between 2023 and 2024.[1]
Under regular conditions, the power grids are expected to cope with the increased demand; however, NERC has flagged certain regions that could struggle to manage extreme heat. One such region includes the Midcontinent Independent System Operator (MISO), which serves approximately 42 million customers across the Midwest, Arkansas, Louisiana, and Mississippi. This system is at an elevated risk of experiencing operating reserve shortfalls during periods of extreme heat or reduced resource output.[1]
Since the previous summer, MISO has tragically retired around 1.6 GW of capacity. Most of this capacity has been replaced with more variable solar power, which can become unreliable during the hottest days, when consistent output is crucial.[4]
Other regions at risk of shortfalls include New England (ISO New England), Texas, and much of the Great Plains.[4]
Investors should consider the impact of a strained grid on power companies. "In the long term, a tightening supply/demand picture is positive for utilities and merchants via higher investment needs and margins, respectively," explained Jefferies analysts in a recent report.[2]
Two utilities predicted to benefit from a tighter grid in Florida are NextEra Energy (NEE) and Duke Energy (DUK), as the region experienced the largest contraction in reserve margins over the past year.[2]
In contrast, Texas Independent Power Producers, such as NRG Energy (NRG) and Vistra (VST), may experience a "Goldilocks update" this year, according to Jefferies. The state's ability to manage demand under normal conditions has improved, while its ability to handle extreme demand has deteriorated, primarily due to a growing reliance on renewables.[2]
However, it's essential to note that in the short run, strained grids can boost headline risk, particularly for utilities operating in high-risk areas. As utilities are often the ones held responsible for outages and reliability issues, high-profile outages could negatively impact investor sentiment.[2]
Stay cool, America! While we're all excited for the summer months, it's crucial to remain mindful of the challenges the power grid faces during extreme heat.
Connect with us for more insights at our website
[1] North American Electric Reliability Corporation (NERC) - 2025 Summer Reliability Assessment
[2] Jefferies - Analyst Note, June 2023
[3] Grid Operators Alert - Summer Heatwave 2023
[4] Midcontinent Independent System Operator (MISO) - Summer Bulletin 2023
[5] ISO New England - Alert Alert! Hot Weather May Affect Grid Reliability, Summer 2023
During extreme heat conditions this summer, power grids could struggle in regions like the Midwest, Midcontinent Independent System Operator (MISO), where a significant amount of traditional power capacity has been replaced with solar power, potentially leading to operating reserve shortfalls. Moreover, sports enthusiasts may notice the impact on various stadiums and arenas using power-intensive equipment amid the heat waves testing the US power grid.
