The recent US heat wave that pushed the largest wholesale electricity grid in the world to declare grid emergencies should serve as a warning to power generators and their insurers, according to SAMP Risk, the insurtech subsidiary of Asset Performance Partners.
Extreme heat events are creating a growing risk of power generation and backup plants being called to generate on an emergency basis, and failures in these situations can become extremely costly for power plants.
Two emergency orders issued by the US Department of Energy over the July 4th weekend authorized PJM Interconnection to curtail data centers and waive power plant pollution limits, as a severe heat wave pushed forecast demand toward an all-time record.
PJM, the largest power grid in the country, had projected peak loads of approximately 159,563 megawatts on July 1 and approximately 162,860 megawatts on July 2, prompting the Department of Energy to declare a statutory emergency under Section 202(c) of the Federal Power Act.
SAMP Risk argued the insurance market needs to respond by monitoring and pricing this risk dynamically, rather than continuing to underwrite the exposure based on static surveys.
The heat wave landed on a grid already under structural strain from data center growth, which sharpens the replacement-power exposure SAMP Risk is flagging.
Wholesale power prices on PJM averaged $136.53 per megawatt-hour in the first quarter of 2026, up 76% from $77.78 a year earlier, with independent market monitor Monitoring Analytics attributing 63% of that increase to data center load. PJM's capacity auction cleared at $329.17 per megawatt-day for the 2026-2027 delivery year, up from $28.92 just two delivery years earlier, a roughly tenfold increase that reflects how tight the region's supply margin has become.
For generators that fail to deliver committed power during an emergency, this is precisely the elevated and volatile market in which they would need to buy replacement power, magnifying the balance sheet risk SAMP Risk is describing.
Alistair Moodie, chief product officer at SAMP Risk, said: "What happened in the US over the July 4th weekend is a preview of a risk the power industry and its insurers need to take seriously. In the UK for example, as heatwaves become more frequent, the National Grid ESO (Electricity System Operator) will be looking at how other operators manage extreme summer loads and at the tools available to them, including formally declaring an emergency to bring more generation capacity online." The grid operator Moodie refers to now goes by the National Energy System Operator (NESO) following its move to public ownership.
SAMP Risk highlights that sustained heat tends to work against supply on both sides of the Atlantic. Higher temperatures typically bring lower wind speeds, reducing output from wind farms, while conventional power plants become less efficient in extreme heat.
For power generators, the financial exposure is twofold.
First, plants miss out on significant revenue during high-demand, low-supply periods when they are unable to increase output to meet demand or experience a failure that stops the plant from operating.
Second, and more seriously, if a plant cannot deliver the power it has committed to the grid, it becomes liable for buying replacement power on the open market, at prices that can spike dramatically during a grid emergency. This is a risk that generators currently carry largely on their own balance sheets or transfer only partially into the insurance market through business interruption and capacity cover.
"This is a real and growing balance sheet risk for power generation businesses, and one the insurance market has an opportunity to respond to properly, through connected insurance," said Moodie. "As power gen operators come under pressure to increase supply during periods of extreme demand, telematics data from the site can give operators and insurers a live view of asset performance, so problems are caught before they become losses, and risk is priced on real operating conditions rather than assumptions."
