Energy Market Intelligence

Hurricane Ida was recorded as the second most powerful storm behind Hurricane Katrina which destroyed much of the state 16 yrs ago, causing damage and power outages through Louisiana. According to President Archie Chaisson, about 14,000 people in one Louisiana parish are without homes and Hurricane Ida damaged or destroyed 75% of the structures. The storm also caused destruction to the regular supply of oil and other projects in and around the Louisiana region. After the storm made landfall on Aug. 29, the damage to U.S. offshore energy production shut about 79% of the region's offshore oil production and 79 production platforms are unoccupied. Approximately 17.5 million barrels of oil have been lost to the market to date, with shutdowns expected to continue for weeks. According to energy analysts, Ida could reduce total U.S. production by as much as 30 million barrels this year. The state of New York was also impacted heavily from the storm with claims of 50 deaths. Gov. Kathy Hochul said the initial assessment of the damage Ida left behind in New York is estimated as at least $50 million.

On Aug. 27, PJM and its stakeholders shared perspectives on reform for interconnection policy; long-term regional and interregional transmission planning; and transmission modernization. PJM presented data showing most (1,560) of the 1,826 proposed generation resources in PJM’s interconnection queue lie within 100 miles of metropolitan load centers. "The takeaway is that 85% of all future resources are within 100 miles of a load center,” David Souder, Executive Director Planning, said. While renewable resources account for more than 90% of the 135,588 MW actual capacity in PJM’s Interconnection queue, it is estimated that only 35%, or 47,452 MW, of these generation projects are expected to come into service.

Solar panels are the most popular renewable energy as the U.S. and Europe promote clean energy and become less reliant on fossil fuels. However, most of the install panels are created in China are with carbon-dioxide-belching, coal-burning plants in China. According to industry analyst Johannes Bernreuter, Chinese factories supply more than three-quarters of the world’s polysilicon, which is an essential component in most solar panels. Producing a solar panel in China creates around twice as much carbon dioxide compared to if it was being made in Europe, said Fengqi You, professor of energy systems engineering at Cornell University. Alternatives to China’s cheaper polysilicon production are difficult and have harmed U.S. producers, which has shutdown several factories that use power sources with lower carbon emissions than Chinese producers.  “However not all Chinese manufacturers are relying on fossil fuels, Tongwei, the world’s largest producer, has some factories that run on hydropower, but it is still a far cry from the number of coal-burning plants. Large energy buyers can influence supply chains,” said Jen Snook of the Renewable Energy Buyers Alliance, which represents Amazon.com Inc., Salesforce.com Inc. and more than 200 other corporations.

PJM Environmental Information Services, Inc. (PJM-EIS) and the Energy Web Foundation completed the development of a blockchain-based tool for the Generation Attribute Tracking System (GATS). Five PJM subscribers tested the paid subscription and piloted it on the GATS Bulletin Board in the Spring of 2021. The Generation Attribute Tracking System (GATS) is a trading platform designed to meet the needs of buyers and sellers involved in the renewable energy certificate (REC) market - from homeowners, market participants such as utilities, brokers, aggregators, and companies wanting to reduce their carbon emissions. Renewable Energy Certificates (RECs) are issued when one megawatt-hour (MWh) of electricity is generated and delivered to the electricity grid from a renewable energy resource such as solar or wind. 

Florida utility Tampa Electric Co. (TECO) has announced it will retire three coal units and double its solar output within two years. According to Tampa Electric’s CEO, Archie Collins, “We currently have on our system 655 megawatts’ worth of renewable energy, of solar. That’s enough solar power to power 100,000 homes, just to ballpark it, and it represents between 6 and 7% of our total energy sales. So we will be at 14% by the end of 2023, and we are committed to even more beyond that.” The majority of Tampa Electric’s energy comes from natural gas which fuels about 74% of Florida’s electricity net generation in 2019, according to the US Energy Information Administration. The $850 million project scheduled for completion by 2023 includes a plan to replace the 445.5-MW coal-fired unit 1 with a 1,090-MW gas-fired generator known as the Big Bend.

Georgia had enough solar installed to power 312,450 homes and the solar market is projected to grow to 1,924 MegaWatts over the next 5 years in 2020. According to the Solar Energy Industries Association, Georgia went from having virtually no solar industry a decade ago to ranking ninth nationwide in installed solar capacity this year. Mandates in states such as Iowa, California, Colorado, and New York that required utilities to source a certain amount of renewables drove initial build-out of solar and wind power in the U.S. over the past three decades. According to Georgia Power spokesman Jeff Wilson, they have added more than 570 solar projects totaling close to 2,000 megawatts to their energy portfolio in the past decade which serves 2.6 million customers across the state. Solar power has also gained the support of conservative coalitions such as the Conservatives for Clean Energy Georgia and the Atlanta Tea Party Patriots, which are also advocating for the expansion of rooftop solar in the state. However, not all politicians are advocating for solar power, such as Lauren ‘Bubba’ McDonald, Georgia public-service commissioner who stated "I oppose any renewable portfolio standard—it’s not necessary." Commissioner Tim Echols - Georgia Public Service Commission has said, “Don’t come into my office talking about climate change or the environment. Talk about new jobs, talk about low-cost energy, talk about reduction of transmission lines.”

Vice President of PJM, Ken Seiler stated that the five coastal states have proposed developing more than 20,000 MW of offshore wind, noting that 93% of the 190,000 MW in PJM’s interconnection queue reflects solar, wind, storage, or hybrid resources. All but two of the states in the PJM region have renewable portfolio goals. They vary from places such as Ohio, with a clean energy goal of 8.5% by 2026, to states like Virginia, which is shooting for 100% by 2045–2050. Seiler said, “We’ve basically quadrupled the number of requests and the number of MW being interconnected to our system.” He also expects that the industry will rely more on underground transmission, high voltage direct current (HVDC) systems, smart-valve solutions, carbon-core conductors, and other advanced technology.

According to the Texas Tribune, Texas Gov. Greg Abbott and other state leaders received millions in campaign contributions from energy companies after the state electrical grid collapsed in February during the winter storm. Abbott reportedly brought in $4.6 million from oil, gas, and energy industry leaders including a $1 million campaign donation from the co-founder of a pipeline company that benefited from the February winter failure of $2.4 billion. Lt. Gov. Dan Patrick brought in $1.3 million in total from energy interest groups in 2021, or just over a quarter of his total received contributions in 2021. Abbott signed two bills into law to weatherize local energy grids in June 2021, but they do not require energy companies to take action until 2022. Abbott did not include anything related to fixing the power grid on the agenda of his first special legislative session of 2021, which ends August 6.

Form Energy has developed an innovative low-cost 150-hour battery that can store energy over a multi-day period, removing issues of wind and variability of solar. According to the company, their first commercial product is a “rechargeable iron-air battery capable of delivering electricity for 100 hours at system costs competitive with conventional power plants and at less than 1/10th the cost of lithium-ion.” Form Energy president and chief operating officer Ted Wiley said, “We’ve completed the science, what’s left to do is scale up from lab-scale prototypes to grid-scale power plants. A 300MW “pilot” project for Minnesota-based Great River Energy will be commissioned in 2023 according to Wiley. Air battery is a new technology of about a decade, and other companies such as Zinc8 announced a zinc-air battery system providing 100-plus hours of storage and ESS has an iron-based battery. ESS and Form Energy are backed by billionaires such as Bill Gates and Jeff Bezos.

Amazon has committed to covering its entire company’s activities by 2025 by purchasing 1.5 gigawatts of production capacity from 14 new solar and wind plants around the world. According to the research firm BloombergNEF,  Amazon, Google, Facebook and Microsoft are the top four corporate buyers of publicly disclosed renewable energy purchase agreements which account for 30% or 25.7 gigawatts of the cumulative total from corporations globally. Tech companies are pressured to show investments in renewables as data centers were estimated to account for roughly 1% of global electricity use, according to a 2020 paper in the journal Science. With work from home and the rise of 5G networks, the growing efficiency has not been able to offset rising usage as it was in the past. The demand for PPAs has also increased as these tech companies are looking into the wind and solar project developments.

The most popular renewable energy source, solar, is seeing even more demand with the decline in price, immense support with government subsidies, and big tech companies, but not everyone is seeing its benefits. Environmentalists are pushing back on solar projects who are concerned that the farms will spoil the land and affect the ecosystem. According to Zhengyao Lu from Sweden’s Lund University and Benjamin Smith from Western Sydney University, solar panels convert light into electricity at an average rate of 15% - 20%, and the rest of the heat is released energy back into the environment which could damage the global climate. The study focused on turning the world’s largest desert, the Sahara into a solar farm.

The EIA reported coal production fell to its lowest level since 1965 in 2020 totaling 535 million short tons (MMst) which was a 24% decrease from 706 MMst mined in 2019. The decline of U.S. coal production was largely due to less demand for coal internationally as well as in the U.S. The low price of natural gas especially during the covid pandemic also led to the lower demand for coal. Wyoming has the largest coal producer in the U.S. with 41% of coal production (219 MMst) and the state produced 21% lower in 2020 compared to 2019. West Virginia, which is the second-largest coal producer, had an even larger decline with 28% in 2020 compared to 2019. America’s biggest coal producer, Peabody Energy, owns the North Antelope Rochelle Coal Mine, the largest coal mine in the world, in the Powder River Basin, and according to Forbes “The outlook for the North Antelope Rochelle Mine has been negatively impacted by the accelerated decline of coal-fired electricity generation in the U.S., driven by the reduced utilization of plants and plant retirements, sustained low natural gas pricing, and the increased use of renewable energy sources. These factors have led to the expectation of reduced future sales volumes.”

Tesla is creating a “virtual power plant” which will allow Californian owners of its Powerwall to feed electricity into the power grid during high energy demand. Tesla states, “The California grid operator forecasts a continued need for Californians to support the grid through 2021. Help create the largest distributed battery system in the world and avoid dependence on the least efficient fossil fuel power plants. Opt-in to the Tesla Virtual Power Plant (VPP), and Tesla will dispatch your Powerwall when the grid needs support while continuing to maintain your energy security.” Tesla says it's not making any money out of the program and is a public good program to support the California grid, and there is no compensation for Tesla or customers.

Given the lack of real-time price volatility during peak demand seasons, it is especially important to take into factors impacted by your as-realized contract margins. In our 100+ years of experience executing trades in the wholesale and retail power markets, we have identified some key data points and drivers that should be in the minds of every energy marketer to develop and execute a solid portfolio management strategy.

PJM Board of Managers approved to prohibit and mitigate the exercise of Buyer-Side Market Power (BSMP) through the minimum offer price rule (MOPR) in the wholesale power market. According to Adam Keech, Vice President of market design and economics at PJM, the PJM proposal seeks to mitigate the MOPR in three critical ways: to narrow the scope of the MOPR back where it was originally intended which was aimed at mitigating buyer-side market power; to avoid harming state policies and power providers with self-supply business models, and to make sure the market design is robust and could work well into the future. Calpine, Exelon, Public Service Electric & Gas Company, LS Power, E-Cubed Policy Associates, Independent Market Monitor (IMM), and American Municipal Power (AMP) issued their own proposals to PJM stakeholders. PJM President and CEO Manu Asthana said “this proposal ensures that our capacity market accommodates state policy and self-supply business models, avoids customer costs of double-procurement, addresses attempted exercises of buyer-side market power and creates a sustainable market design by keeping clearing prices consistent with supply and demand fundamentals.” 

A heatwave has prompted excessive heat warnings from the Pacific Northwest to the Northeast, Western Canada, and the East Coast. The extreme conditions have sent future prices to soar early in the season. According to NatGasWeather “what helps make the coming pattern bullish is the likelihood of a hot pattern for the 11- to 15-day period (July 7-12) carrying over to the 16- to 20-day period (July 13-17).” Roadways and energy infrastructure were affected due to the heatwave, including power outages, transmission line voltage reductions, compressor issues, and pipelines. Aegis Hedging Solutions said several compressor stations in Western Canada were offline for periods of time because of the extreme heat. Generators for hydroelectric power have decreased capacity in producing power because of lower lake levels. Power outages in California and western states lead to higher gas prices.

NRG Energy Inc. said it will retire three coal-fired power plants—two in Illinois and one in Delaware—next year after disappointing results in the May 2021 capacity auction for the PJM Interconnection. The clearing price for most of PJM’s service territory dropped to $50/MW-day in the 2022-23 capacity auction, down from $140/MW-day for the unconstrained regional transmission organization region in the 2021-22 capacity auction. PJM said there was a reduction of 8,175 MW of coal generation from the previous auction when accounting for resources committed to fixed resource requirement plans. Christopher Moser, NRG’s executive vice president of operations said the three facilities would be retired in June 2022. 

PJM, which makes up about 63% of wholesale power costs, has finalized nine proposals to modify the Minimum Offer Price Rule (MOPR) that was issued by the Federal Energy Regulatory Commission (FERC) in  2019. The goal is to propose the MOPR changes with FERC for the 2023/2024 Delivery Year Base Residual Auction scheduled in December 2021. If you recall, MOPR raises the price of all fuel types, no matter the size, that receive or are entitled to receive state subsidies, such as renewables. According to PJM, “repricing proposals and those that heavily rely on the MOPR create inconsistencies between prices and actual conditions... believes this leads to unclear market signals.”  Clean energy advocates support PJM’s proposals because MOPR raises costs and could derail clean energy initiatives. However, MOPR supporters state that renewable resources that receive credits or other state subsidies suppress capacity market prices and make it more difficult for other resources such as new gas plants to compete in the market.

More drama in ERCOT, Texas set an all-time record for power usage due to a heatwave in the month of June with more than 12,000 megawatts of power generation being out of service during the demand spike. This is the second time the state of Texas has endured power shortages due to extreme weather conditions, the first back in February from an extreme winter storm. According to ERCOT, of the approximately 12,000 megawatts of generation offline last Monday, about 9,600 megawatts, or nearly 80% of the outages, were from thermal power sources. The Texas power outage tracker still shows that there are currently 2,724 customers without power in Texas. That represents less than 1% of 12 million customers tracked (June 23, 2021). Leslie Sopko, a spokesperson for ERCOT stated, “Based on preliminary information received from generation owners, the vast majority of forced outages that occurred last week are due to equipment issues.”

New technology and policy changes helped to make the price of renewable energy cheaper than fossil fuel and coal. Prices of solar are falling by 3% compared to last year to a global average of 6.8 US cents per kilowatt-hour, while onshore and offshore wind costs both fell by about 9% to 5.3 cents per kWh and 11.5 cents per kWh respectively. 62% of new renewable energy projects built globally last year are expected to undercut coal plants of up to 800 gigawatts (GW). Francesco La Camera, International Renewable Energy Agency (Irena) director-general said, “ Today renewables are the cheapest source of power. Renewables present countries tied to coal with an economically attractive phase-out agenda that ensures they meet growing energy demand while saving costs, adding jobs, boosting growth, and meeting climate ambition.”

California’s electric Grid is showing improvements compared to last August, however, Elliot Mainzer, president, and chief executive officer of the California Independent System Operator (ISO) was cautious about his statements and added “It continues to get hotter every year. As a result, the grid will continue to remain vulnerable to high loads and decreased imports during a broader West-wide heatwave event like the one we saw last year. If imports dry up and we’re limited to capacity that’s been secured under resource adequacy contracts, we're facing the possibility of the scarcity of energy supply this summer.” California Independent System Operator (ISO) is one of the largest power grids in the world and manages about 80 percent of the California electric grid as well as parts of Nevada. In order to have a reliable grid, the California Public Utilities Commission (CPUC) President Marybel Batjer said additional steps such as directing utilities to procure more resources such as adding 2.5 percent to the previously required 15 percent reserve capacity, adopting an emergency load reduction program, ordering investor-owned utilities to modify critical peak pricing programs and expanding demand response programs. The California Energy Commission (CEC) has incorporated improving its energy demand forecasting extended from a 10-year horizon to 15 years, evaluating rooftop solar to determine performance and reliability, and investing $74 million to support new technologies. California with its challenges of the grid is still planning to achieve clean energy goals.

Lubbock Power & Light (LP&L) successfully connected 70% of its system, which is approximately 83,000 customers, to the Electric Reliability Council of Texas (ERCOT) on May 30. This interconnection is the first in Lubbock’s history and the first in the state in 25 years. The interconnection project has been in the works since March 2018 and LP&L customers can expect to see greater savings with the removal of capacity charges that are not required in ERCOT compared to other ISOs. The second phase is awaiting approval to connect the remaining 30% of the LP&L system which is about 24,000 customers. In addition to customer savings, LP&L joining ERCOT would eliminate new power plants which are estimated to cost $350 million to $700 million. Connecting to ERCOT is the first step in opening the door to retail electric competition in Lubbock. 

Vistra Corp. owns 36 natural-gas power plants, one of America’s largest fleets and doesn’t plan to buy or build anymore. Instead, Vistra intends to invest more than $1 billion in solar farms and battery storage units in Texas and California. Vistra Chief Executive Curt Morgan stated, “I’m hellbent on not becoming the next Blockbuster Video. I’m not going to sit back and watch this legacy business dwindle and not participate.” A decade ago, natural gas displaced coal as America’s top electric power source, as fracking unlocked cheap quantities of the fuel. Natural-gas-fired electricity represented 38% of U.S. generation in 2019, according to the U.S. Energy Information Administration. Battery storage remains less than 1% of America’s electricity market and so far draws power principally from solar generators. 

Many factors play a role in driving retail electricity prices that most energy companies, and many end-users, employ teams of analysts to track all the moving parts that so greatly affect their costs and exposure to risk.

Pacific Gas and Electric Co. (PG&E) has been fined $106 million by the California Public Utilities Commission (CPUC) for allegedly violating guidelines in 2019 for executing planned power outages to lower wildfire risks. The violations according to the administrative law judge (ALJ) were stated as a “failure of PG&E’s website, which was unavailable or non-functional during the majority of the duration of a PSPS event, inaccuracy of its online outage maps, inaccessibility of its secure data transfer portals to its public safety partners, and PG&E’s failure to provide advanced notification of [PSPS] events to approximately 50,000 customers and 1,100 medical baseline customers during the three PSPS events in Fall 2019.” PG&E stated that they covered $86 million of the fine through customer bill credits, therefore, the decision orders a net payment of $20 million to be paid by shareholders through credits to customers and a contribution to a statewide backup portable battery program.

February 2021 winter storm in Texas has sparked legislation requiring only natural gas generation facilities that are deemed “critical” by regulators to weatherize along with power plants and transmission lines. Senate Bill (SB) 3 estimates $4.5 billion in ratepayer-backed bonds for natural gas utilities, $2 billion for electric cooperatives in crisis-related grid services, and $800 million loaned to pay off debts to the Electric Reliability Council of Texas (ERCOT). There would also be a requirement to implement an emergency alert system for blackouts similar to an Amber Alert which are emergency messages issued when a child has been abducted. Regulatory changes such as the number of seats on ERCOTS board to 11 from 16 and requiring members to live in Texas. A consulting firm would also be brought in to select eight out of the 11 members.

The Department of Interior (DOI), Bureau of Ocean Energy Management (BOEM), and the Department of Defense (DOD) have agreed to lease 399 square miles off the northern coast of California for Wind Energy Area (WEA) development. The agreement identifies two sites off central and Northern California with the potential to install massive floating wind turbines that could produce 4.6 gigawatts of electricity, enough to power 1.6 million homes. Interest in offshore wind on the West Coast has grown for years, especially with California's own ambitious goal to cut greenhouse gas emissions. "This is a major breakthrough — a major advancement that will allow California to start planning for its carbon-free electricity goals with offshore wind firmly in the picture," says Nancy Rader of the California Wind Energy Association, who also pointed to the challenges. "Offshore wind development off the coast at Morro Bay and Humboldt will require a major port facility in each area to construct the floating platforms and assemble the turbines that will require continued proactive planning by the state and federal governments."