The True Cost of Power: Oil Just Gave Back Its War Premium. Why Did the Cost of Powering a Building Rise Anyway?
By Keith Reynolds | Publisher & Editor, ChargedUp!
Oil gave back most of its war premium this week. In the same five days, new tariffs raised the price of the materials a building is made of, and a neighboring country put electricity on the table as leverage. Only one of those moves showed up in the headlines.
A Note From the Editor
This column has argued for months that the headline cost of energy and the structural cost of power run on separate tracks. This week produced the cleanest illustration yet, and an uncomfortable one. The cyclical layer improved sharply. The structural layer got worse in two directions at once. An owner reading only the cost of a barrel of oil would conclude the pressure is easing. The opposite is closer to the truth. Here’s why.
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Because the forces that set a building's power cost are no longer mostly about fuel. Brent crude fell roughly 8 percent in two sessions as diplomatic signals eased fears of a wider conflict. In the same week, 50 percent tariffs took effect on more than 550 categories of Canadian goods, including cement, plywood, fiberboard, lighting fixtures, and tools, raising the delivered cost of nearly every physical component of a construction or retrofit project. And Ontario's premier said publicly that electricity exports to the United States are on the table as a response. The fuel cost fell. The cost of building anything that uses power went up, and the supply of imported power became a negotiating position.
The War Premium Comes Out of the Price
Brent crude settled near $87 a barrel on Tuesday, down from about $92 on Monday and roughly 7.7 percent below Friday's close, erasing more than half of a two-week rally. The move followed a pair of developments that removed fear without removing a single barrel from the market. Sanctions measures announced early in the week landed softer than traders had anticipated, setting no firm deadline, and a senior Pakistani military official spent a day in Tehran carrying what was reported to be a proposal on sanctions relief. Substantial volumes of crude continued moving through the Strait of Hormuz throughout.
This is the sixth relief move of the conflict by this column's count, and it follows the established pattern: a diplomatic headline, a sharp two-session unwind, and no change to the physical supply picture. Brent reached an intraday high above $120 in late April. It has traded in a wide band ever since, punishing anyone who treated any single week as a trend. The useful conclusion is not that oil is headed lower. It is that oil remains the wrong instrument for setting a five-year capital plan on a building.
Trade Policy Raises the Cost of the Hedge
The more consequential development for property owners arrived quietly over the weekend. After trade talks broke down on Friday, tariffs of 50 percent took effect on roughly $20 billion of Canadian goods, covering more than 550 product categories. The list reaches directly into construction: cement, furniture, lighting fixtures, various tools, fence components, lumber, wood moldings, and a range of plywood, fiberboard, and veneered panels. These duties sit on top of existing Section 232 tariffs on steel, lumber, and automobiles rather than replacing them, and they were imposed under Section 338 of the Tariff Act of 1930, a provision that had never previously been used.
The mechanism that matters here is not the consumer price of any single item. It is that distributed energy projects are construction projects. A rooftop solar array needs racking, fasteners, conduit, and electrical room build-out. A battery installation needs a pad, a switchgear enclosure, and often structural work. A building retrofit aimed at cutting demand charges needs ductwork, controls, wiring, and labor. Every one of those line items draws on the same materials market the tariffs just repriced.
This is the tension worth sitting with. The standard answer to rising and volatile power costs is to build onsite generation, storage, and load control. That answer just got more expensive to execute, in the same week the case for executing it strengthened. Owners who have been holding a distributed energy project in the pipeline waiting for better pricing are now waiting into a headwind rather than a tailwind.
Electricity Becomes a Bargaining Chip
The second structural move came from north of the border. Ontario Premier Doug Ford told the Associated Press that his province could raise the price of electricity exported to the United States or halt those exports altogether if the trade dispute worsens, saying everything is on the table. Ontario's exports go primarily to New York and Michigan, with smaller volumes to Minnesota, according to the province's system operator. Quebec, which supplies New England through a separate set of interties, has signaled a similar unwillingness to rule options out.
There is precedent, and it is instructive. Ontario imposed a 25 percent tariff on power exports in March 2025 and suspended it the following day. In the same period, Hydro-Quebec sharply curtailed flows into New England for weeks. Neither episode produced a reliability crisis. Both demonstrated that cross-border electricity, long treated as an apolitical commodity, can be repriced or withheld on short notice.
That is the durable change, and it does not reverse when this particular dispute settles. Transmission projects are multibillion-dollar, multidecade investments underwritten on assumptions of stable access and stable pricing. Once political risk enters that calculation, it stays in it. Any regional resource plan that leans on imported power now carries a risk premium it did not carry three years ago, and that premium eventually reaches retail rates.
Read the Exposure Honestly
The disciplined reading requires acknowledging what cuts the other way, because two facts limit how alarming this should sound.
First, the Northeast is materially less dependent on Canadian power than it was. Canadian imports supplied an average of 14 percent of New England's electricity demand between 2016 and 2022. That share fell to 11 percent in 2023 and to about 5 percent in 2024, and through the first eight months of 2025 daily net imports ran below 40 percent of their 2022 level, according to the U.S. Energy Information Administration (EIA). ISO New England, the regional grid operator, has said a broader reduction in Canadian exports would be largely financial in effect under typical weather conditions rather than a reliability event. The exception is concentrated and real: roughly 58,000 customers in northern Maine draw all of their electricity from New Brunswick.
Second, the construction materials exposure is narrower than the tariff list suggests. The American Cement Association estimates Canada accounts for about 5 percent of total United States cement usage, which caps the direct effect on that input. Much of the heavier exposure for builders was already priced in through existing softwood lumber, steel, aluminum, and copper duties.
The honest conclusion sits between the two poles. This week did not create a supply emergency or a cost shock. It added a layer of cost and a layer of political risk to a system that already had thin margin on both, during a period when the demand side is growing faster than the supply side can respond.
Capital Costs Refuse to Cooperate
The financing environment offers no relief to offset any of it. The 30-year Treasury yield closed at 5.31 percent on August 17, its highest level since 2007, and the Treasury Department intervened in the bond market on August 19 with expanded buybacks that faded within roughly 48 hours. The 10-year, the benchmark that anchors commercial mortgage pricing, has eased to about 4.63 percent as oil fell, after touching roughly 4.70 percent the prior week.
The Federal Reserve held rates steady at its July meeting over a 9-3 dissent, the most hawkish split in nearly a decade, and market pricing has put the odds of a September increase at roughly one in three. Fed Chair Kevin Warsh delivers his first Jackson Hole keynote on Friday, with the symposium opening Thursday. Whatever he says, the operative condition for property owners is unchanged: capital remains expensive, cap rates are not compressing, and returns have to come from property income rather than from cheaper debt or multiple expansion.
What This Means for a Building's Value
Three pressures now converge on the same line of the operating statement. Capital costs are high and not falling. The capital expenditure required to reduce energy exposure is rising because of tariffs on materials. And the electricity supply itself carries a new political risk in several regions. The one variable that improved this week, fuel, is the one an owner cannot control and should not plan around.
The arithmetic that anchors this series still governs the decision. At an 8 percent capitalization rate, every $1,000 of durable annual energy cost removed from a building's operating statement supports roughly $12,500 in asset value. That relationship has not changed. What changed this week is the cost of buying that improvement, which means the projects with the strongest underlying economics still clear the bar and the marginal ones move further away from it. The correct response is sharper project selection, not a blanket retreat.
There is a timing dimension as well. Equipment and materials pricing that a developer quoted in June may no longer hold. A project carrying a stale budget into a fall construction start is carrying a risk that belongs in writing, in the contract, before the crew mobilizes.
A Practical Way to Think About It
For an owner weighing a distributed energy or efficiency project in this environment, four steps follow directly from the week's developments.
1. Re-price any quote older than 60 days. Materials pricing moved this week. A budget built on spring numbers may understate the project by a meaningful margin, and finding that out after mobilization is the expensive version.
2. Ask where the equipment and materials originate. Country of origin now determines duty exposure on a growing share of the components in an electrical or mechanical scope. Push the question to the supplier level, not just the contractor level.
3. Put escalation and origin language in the contract. Decide deliberately who carries tariff risk between signing and delivery. Silence in the contract usually means the owner carries it.
4. Check whether the regional supply picture leans on imports. In New York, Michigan, Minnesota, and parts of New England, some share of regional supply crosses a border. That exposure is modest in most places and concentrated in a few, but it now belongs in the rate assumption behind a long-term hold.
The Bottom Line
The war premium came out of oil this week, and it will go back in on the next headline out of the Gulf. That cycle has run six times this year and has taught owners nothing they can build on. The developments that will still matter in five years arrived with far less noise: a tariff regime that raised the cost of physical construction, and a neighboring supplier that treated electricity as leverage for the first time in the modern history of the North American grid.
Both of those raise the true cost of power. Neither reverses on a diplomatic headline. The owners who come through this period in the strongest position will be the ones who read the quiet developments rather than the loud one, and who priced their projects this week rather than last spring.
Sources
https://www.utilitydive.com/news/us-canada-trade-war-threatens-electricity-imports-prices/828689/
https://www.housingwire.com/articles/canada-tariffs-trump-homebuilders/
Frequently Asked Questions
Why did oil fall this week?
Brent settled near $87 a barrel Tuesday, down about 7.7 percent from Friday, after sanctions measures landed softer than expected and diplomatic mediation in Tehran reduced fears of escalation. No physical supply was added or removed. It is the sixth relief move of this conflict.
Which construction materials do the new Canadian tariffs cover?
The 50 percent duties apply to more than 550 categories, including cement, lumber, wood moldings, plywood, fiberboard and veneered panels, lighting fixtures, fence components, various tools, and furniture. They are additional to existing steel, aluminum, copper, and softwood lumber duties.
Could Canada actually cut off electricity exports?
Ontario's premier said the option is on the table, and Ontario briefly imposed a 25 percent export tariff in March 2025 before suspending it a day later. New England's grid operator has said a broader reduction would be largely financial in effect under typical weather rather than a reliability event, though about 58,000 customers in northern Maine depend entirely on New Brunswick supply.
How exposed is the Northeast to Canadian power?
Less than it once was. EIA data show Canadian imports averaged 14 percent of New England demand from 2016 through 2022, falling to about 5 percent in 2024. The exposure is real but has narrowed considerably.
What should an owner do differently because of this week?
Re-price any project quote older than about 60 days, confirm country of origin for major equipment and materials, allocate tariff escalation risk explicitly in the contract, and reflect any regional reliance on imported power in long-term rate assumptions.
