Brace for More Volatile Electricity Markets | LOGARISK's Imane Bakkar on Weather, AI, and other Forces Causing More Volatile Electric Grids
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Podcast Summary
In this episode of Monetary Matters, host Chuck interviews Aman Bakar, founder and managing director of LogiRisk, about the evolving electricity landscape and its intersection with artificial intelligence and renewable energy. The conversation explores how AI data centers are creating unpredictable demand spikes in power grids, fundamentally altering the traditional supply-demand balance that utilities have managed for decades. (02:11) Bakar explains that while human electricity consumption follows predictable patterns tied to weather and daily routines, AI algorithms can trigger sudden energy demands at any time, potentially destabilizing power grids.
- Core Theme: The financial system is becoming increasingly weather-sensitive as renewable energy sources grow and private markets invest heavily in weather-dependent infrastructure, creating new risk management challenges that require sophisticated modeling and analysis.
Speakers
Chuck (Host)
Chuck is the host of Monetary Matters, a podcast focused on financial markets and economic trends. He demonstrates deep knowledge of financial markets and conducts insightful interviews with industry experts about complex economic topics.
Aman Bakar
Aman Bakar is the founder and managing director of LogiRisk, a London-based risk management consulting firm. With 25 years of experience in the financial system, he has held senior risk management roles at large investment banks and central banks. He recently published a white paper titled "Weather is No Small Talk" examining the interconnectedness between weather patterns and financial markets.
Key Takeaways
AI Creates Unpredictable Power Grid Instability
Unlike human electricity consumption patterns that follow predictable cycles based on temperature and daily routines, artificial intelligence algorithms can trigger sudden energy spikes at any time of day. (02:45) Research from the University of Manchester found that AI could introduce instability by inducing unpredictable demand spikes, fundamentally challenging how power grids have traditionally managed supply and demand forecasting.
Weather Risk Has Replaced Geopolitical Risk in Power Generation
As renewable energy sources now constitute over 50% of power generation in countries like Germany and the UK, weather has become the primary risk factor rather than geopolitical concerns about fuel supply. (08:28) This shift means power grids must now manage risks around sunny versus cloudy days and wind patterns instead of traditional concerns about coal and gas shipments, requiring entirely different risk management approaches.
Private Markets Now Dominate Renewable Energy Ownership
Private equity and institutional investors own 58% of wind power, 47% of solar power, and 34% of natural gas assets in the United States, according to research from the National Bureau of Economic Research. (24:26) This concentration of weather-sensitive assets in less-regulated private markets creates potential systemic risks, as these institutions may lack the sophisticated weather modeling capabilities needed to properly manage their exposure.
Weather Data and Analytics Are Becoming Privatized
The collection and analysis of weather data is increasingly shifting from public institutions like NASA and NOAA to private companies with advanced technology. (18:35) While this can provide more sophisticated forecasting, it raises ethical questions about whether private entities with superior weather prediction capabilities have obligations to share life-saving information during extreme weather events rather than using it solely for trading advantages.
Infrastructure Investment Requires Sophisticated Risk Management
The combination of weather-dependent renewable energy sources and unpredictable AI demand creates complex risk scenarios that require advanced modeling capabilities. (28:30) Many private market investors may lack access to the sophisticated weather data and risk management tools needed to properly value and manage their renewable energy investments, potentially creating valuation errors and systemic vulnerabilities.
Statistics & Facts
- Private equity and institutional investors own 58% of wind power, 47% of solar power, and 34% of natural gas assets in the United States, according to research from the National Bureau of Economic Research. (24:26) This statistic demonstrates the significant shift from traditional utility ownership to private market control of energy infrastructure.
- The weather forecasting market is expected to grow to $4 billion in the next few years, reflecting the increasing privatization and commercialization of weather data and analytics services. (19:17)
- Non-bank financial institutions, which include private markets, constitute half of the global financial system with private markets alone representing $15 trillion globally according to the UK's Financial Conduct Authority. (23:29)
