Energy Buzz
Japan Possibly Importing LNG From Continental US
Due to last year’s tsunami effects on Japans nuclear fleet, the country now heavily relies on liquefied natural gas (LNG) for their power needs. The fracking revolution has flooded the US natural gas market – prompting many producers to consider export projects.
LNG Tanker Leaving Japan/Courtesy of Bloomberg
Japan is currently in talks with Sempra Energy’s LNG project in Cameron, Louisiana; Dominion Resources’ LNG project in Cove Point, Maryland; and Freeport LNG in Texas to buy a combined 30 million metric tons of LNG a year. More information can be found here.
Gas prices in Asia are about seven times higher than US prices, making the export to Japan a profitable opportunity for US natural gas corporations. Like any commodity, exporting from the US decreases the supply and increases the demand causing prices to potentially increase.
Read MoreTexas Electricity Prices Rise Due to Market Capacity Charges and Shrinking Reserve Margins
Despite 10 year low natural gas prices, why are ERCOT electricity rates now rising?
Wholesale power prices follow natural gas prices, especially in Texas where about half of power plants are powered by this fuel. A compilation of several factors including tight reserve margins and an increased market cap are adversely affecting electricity prices.
Rates have increased by $0.002 to $0.004 per kilowatt hour (kWh) on new retail electric contracts. For a customer with an annual usage of 1 million kWh, this equates to $2,000 to $4,000 in extra costs per year.
Additionally, the population in Texas is increasing by nearly 200,000 people each year and no new generation has been constructed nor have any plans for new generation been submitted. This means Texas’ electricity needs are spread even thinner to accommodate not only the rising population, but the extreme demand in severe winter or summer months.
Reserve Margins
A reserve margin refers to the amount of available power capacity above the capacity needed to meet normal peak demand levels. ERCOT’s target reserve margin, used to ensure stable grid operation, is set at 13.75%. The forecasted reserve margin for summer 2012 is slightly above that at 13.99%.
Last year’s reserve margins were at 17.5% and still, in February and August 2011, the grid not only failed to meet demand but also set a new winter peak demand record and three all-time summer peak demand records in 4 days. Read More: ERCOT News Release
Market Caps
The lack of generation has led the Public Utility Commission of Texas to come up with a potential solution: raising the market cap. A market cap is the maximum cost a generator can charge for electricity per megawatt. The cap is important during peak demand times and electricity generators rely on these peaks to make a profit.
Wholesale prices of electricity are currently around $40 per megawatt. In August of last year, when record-high temperatures plagued Texas, wholesale prices spiked to the current cap of $3,000 per megawatt or $3.00 per kWh.
The PUC is pushing to increase the cap to $4,500 this summer and potentially up to $7,500 in the next several years. Raising the cap will hopefully bring in new generation by providing a financial incentive to investors. Rather than earning $3,000 per megawatt during peak demand, they will earn a minimum of 1.5 times more than the current cap.
We will keep you updated on any further information regarding the market cap and or reserve margins.
Read MoreNatural Gas Gluttony Causing One Major Producer to Reduce Drilling Operations
Chesapeake Energy Corporation (NYSE: CHK), the second largest producer of natural gas in the United States, is making vast changes in order to protect their shareholders. Natural gas prices have hit a ten year low causing Chesapeake to decrease drilling in the Barnett, Haynesville and Marcellus Shale Plays. The company is immediately curtailing gross gas production by up to .5 billion cubic feet (Bcf) per day. If prices remain low, the company is willing to increase the curtailment to 1 Bcf a day.
An abundance of shale gas plays (see above image) has led to a surplus in natural gas inventories. Coupled with the mild winter the US has seen, natural gas prices steadily declined. After Chesapeake’s announcement, the market closed up $0.182 to $2.525. Pundits still feel that to have a real impact, other producers such as Exxon, EnCana and Devon Energy will have to follow suit.
Please visit http://rapidpower.net/rpm-market-news to see a real time update on 12, 24 and 36 month natural gas futures prices.
Read MoreEPA’s CSAPR Delayed
The EPA Cross State Air Pollution Rule finalized in July 2011 has been delayed pending further review. The US District Court of Appeals granted a request from several power generators who stated the January 1, 2012 implementation date was too soon.
The Federal Electric Regulatory Council (FERC) is also concerned with the impact that the rule would have in places like Texas and the New England States where demand is high.
The court is asking that oral arguments regarding this matter take place by April 2012.
As RPM clients, we will continue to keep you informed on this critical piece of legislation.
Previous Articles Regarding the CSAPR:
Enforcement of the Cross State Air Pollution Rule Nears
EPA’s Clean Air Act Amendment could cause energy prices to rise as early as 2012
Read MoreERCOT News Release
ERCOT has released both the winter 2011/2012 assessment as well as their biannual assessment for the next 10 years. Risk is very low, according to CEO Trip Doggett, that peak demand will exceed the available resources this winter season. ERCOT will continue to monitor the situation. Beginning summer 2012 it may be a different story. Power reserves — the extra capacity used to avoid rotating outages — will likely fall below the minimim target as they have decreased by five percent. This means we can expect emergency procedures and potential outages.
Click to read more on the Winter 2011/2012 Assessment.
Read MoreQ4 2011: Solar Power: Time To Shine?
Renewable energy sources such as Solar power have become an increasingly popular energy resource over the years thanks to decreasing prices and increased awareness via reduced production costs, green energy advocates, government incentives and panel manufacturers’ marketing efforts.
Although solar power is still approximately three times more expensive than electricity produced by natural gas, prices have fallen by two thirds since 2008. To further solar power’s affordability, federal and state governments are offering tax breaks and subsidies.
The federal government offers a tax credit of 30 percent for the gross cost of solar panel installation for residents and businesses. On top of the tax credit, each state offers its own incentives for all forms of renewable energy, including solar.
The Department of Energy (DOE) rolled out the SunShot Initiative in 2007 to decrease solar energy system costs by 75% before 2020. When this goal is reached, systems will even be affordable without any rebates or tax cuts. The main goal has been to drive innovative technology.
Under the initiative, the DOE began backing the company 1366 Technologies this October with a $150-million loan. 1366 believes their new manufacturing process will significantly cut costs, making prices competitive with that of coal.
New thin-film photovoltaic cell technologies are also bringing down the costs and large companies like GE are beginning to manufacture the panels. In October GE announced plans to build the largest thin-film panel factory in the United States.
These initiatives are not only bringing down costs, they are creating jobs and with their implementation, protecting the environment.
Solar’s portion of the power business remains small but has great potential to flourish. According to the U.S. Energy Information Administration (EIA), solar power is capable of providing many times the total current energy demand.
U.S. Department of Energy (DOE) SunShot Initiative; http://www1.eere.energy.gov/solar/sunshot/
Information on state, local, utility and federal incentives and policies that promote renewable energy and energy efficiency: http://www.dsireusa.org/
HAVE SOLAR COSTS COME DOWN ENOUGH FOR YOUR FACILITY?
See the example of a Ft. Worth, Texas territory cost comparison*:
THE SAME SYSTEM COST 1.6 TIMES MORE IN 2006 THAN IT WOULD NOW
*These are simply estimates calculated by RPM based on real numbers from NREL and a solar panel installer. While every state in the US is given the same federal tax credit, each state adds its own incentives. For example, New Jersey offers a yearly payback through their surplus agreements for the first 15 years of your systems life which could slash costs up to 60%.
SOLAR POWER FACTS
- Low-temperature solar collectors also absorb the sun’s heat energy, but instead of making electricity, use the heat directly for hot water or space heating in homes, offices, and other buildings.
- Covering 4% of the world’s desert area with photovoltaics could supply the equivalent of all of the world’s electricity.
- The Gobi Desert alone could supply almost all of the world’s total electricity demand.
- Passing of Bill 632 restricts any Home Owner’s Association from banning solar panels on home rooftops.
- Photovoltaic cells are used to transform energy from the sun directly into electrical power. The amount of electricity generated by a cell depends on a few things including device size, weather and length of exposure to light.
- Since the sun is an intermittent energy source, another electricity source would need to provide power during the evening or during a storm when light is not present or potent. Highest electricity demand is during the day time so the ‘back-up’ energy source would be used sparingly.
- Using solar energy produces no air or water pollution and no greenhouse gases
GDP UPDATE
The nation’s economy gained much-needed strength in the third quarter, as the pace of growth nearly doubled compared to the previous three months.
According to an advanced estimate released on October 27, U.S. gross domestic product grew 2.5% – almost double the second quarter. A poor 0.4% growth in the first three months of the year was followed by a slightly more promising 1.3% increase in the second quarter.
Stronger consumer spending significantly contributed to the growth, helping to make up for cuts in government spending.
An increase of at least 3% is needed to create enough jobs to lower the unemployment rate but economists aren’t expecting to see that rise even through 2012.
OIL AND GAS UPDATE
EIA projects average household heating expenditures for natural gas, propane, and heating oil will increase by 3 percent, 7 percent, and 8 percent, respectively, this winter (October 1 to March 31) compared with last winter, while electricity heating expenditures fall by less than 1 percent. Average expenditures for households that heat with oil are forecasted to be higher than in any previous winter.
This forecast reflects higher prices for natural gas, propane, and heating oil, and slightly milder weather than last winter in much of the nation contributing to lower consumption in many areas.
EIA expects the U.S. average refiner acquisition cost of crude oil to average $99 per barrel in 2011 and $98 per barrel in 2012, compared with $100 per barrel and $103 per barrel, respectively, in the previous Outlook.
Natural gas working inventories ended September 2011 at 3.4 trillion cubic feet (Tcf), about 2.6 percent, or 91 billion cubic feet (Bcf), below the 2010 end-of-September level. EIA expects that working natural gas inventories will approach last year’s high levels by the end of the injection season, typically October-November each year. The projected Henry Hub natural gas spot price averages $4.15 per million British thermal units (MMBtu) in 2011, $0.24 per MMBtu lower than the 2010 average. EIA expects the rate of growth in domestic natural gas production to slow in 2012, with the Henry Hub spot price averaging $4.32 per MMBtu.
Read More
Dallas Business Journal Interviews JD
Matt Joyce of the Dallas Business Journal interviewed one of RPM’s business partners, JD, at the TEPA conference. They spoke about the EPA’s “Cross State Air Pollution Rule” and the impact it could have on the electricity market in Texas. The article also highlights challenges ERCOT may face to meet demand in the future.
Check out the article here.
Read MoreEPA Partnership Opportunity
Team up with the Environmental Protection Agency by purchasing your electricity from retailers who provide clean, renewable resources such as wind or solar power. This Green Power Partnership will promote green power in order to reduce harmful environmental impacts. The minimum requirements to become a partner are as follows:
As a partner, your business name and ’snapshot’ will be added to the EPA’s partner list on their website. In return, the EPA gives your company permission to use the Partner Mark logo on its site. Please note that this program is completely voluntary and does require an application and yearly profile update.
If ”going green” is important to your company, this is a great way to promote it. Through this program businesses receive expert advice, recognition and market updates.
Read MoreEnforcement of the Cross State Air Pollution Rule Nears
The Cross State Air Pollution Rule (CSAPR) is approximately 3 months away from being enforced in 27 states. To meet the terms of this ruling, power companies are being forced to significantly reduce their sulfur dioxide and nitrogen oxide emissions by January 1, 2012 or shut down.
Finalized this July, CSPAR will mainly affect power producers who rely on coal to generate electricity. Those regions with heavy coal-based generation may see power prices raise as many plants are obligated to retrofit with new technology or shut down.
Projected decrease in emissions beginning this January
The EPA states, “This rule will not disrupt a reliable flow of affordable electricity for American consumers and businesses.” Additionally, the EPA explains that any increase in costs will be outweighed by the benefits of the ruling. (For more information on the EPA’s stance on the rule, please visit: http://www.epa.gov/crossstaterule/)
Several states, including Florida, Nebraska, Oklahoma and Kansas, beg to differ and have challenged the EPA over its decision. Attorney General Greg Abbot in Texas explained that the EPA is ignoring the increased potential for power outage risks and unemployment for coal miners and power plant employees.
RPM will continue monitoring any changes in the ruling.
Read MoreEnforcement of the Cross State Air Pollution Rule Nears
The Environmental Protection Agency begins enforcing the Cross-State Air Pollution Rule January 1, 2012. To meet the terms of this ruling, power companies are being forced to significantly reduce their sulfur dioxide and nitrogen oxide emissions. One Dallas power company has made the decision to shut down two of its coal plants.
Energy Future Holdings (EFH) generation unit, Luminant, announced last Monday their plans to suspend generation in Monticello and Mt. Pleasant, Texas.
NRG Energy Inc. also made a decision to cease operation at three of their natural gas plants near Houston. The combination of EFH’s and NRG’s plants amount to more than 1,600 megawatts of electricity – enough to power 400,000 households at any one time.
Another proposed environmental regulation could begin affecting natural gas plants. According to ERCOT, the Clean Water Act requires cooling-water intake structures to minimize negative affects on fish populations. The proposed revision to the Clean Water Act requires closed-loop cooling tower systems to be installed at all existing
facilities that currently utilize once-through cooling.
The combination of the two rules could significantly affect generation in Texas. As you can see in the above chart, more than 75% of Texas’ electricity is generated by natural gas and coal plants. Approximately 36 plants would need to make a choice by 2016 on whether to stop producing electricity entirely or comply with the new rules.
The top figure shows expected power plant retirement with the CSAPR enforced. The bottom figure shows potential retirement with the CSAPR and the Clean Air Act combined.
More operators could follow suit due to the high costs of retrofitting the plants with equipment to comply with these standards. With the decision to retire plants comes the realization that grid operators may have an increasingly difficult time meeting demand, especially when temperatures begin rising again.
Aside from new guidelines tightening the grid, the record-high electricity demand in August eliminated profits for several Texas retailers. This has forced many to purchase more insurance to protect against extreme swings in the wholesale market. Insurance costs would then be passed along to the customers, increasing retail rates.
With the combination of high insurance costs and limitations on production, customers might see increases in their electricity prices on any contracts moving forward. RPM will continue to monitor any changes in the ruling.
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