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TRUELight's Clean Energy Market Series: Arizona

State GoalS

Arizona is committed to 100% zero-emission energy by 2050 with a 45% renewable energy portfolio by 2030. The state also plans to eliminate coal by 2031, which is seven years sooner than previously projected. This is big news since coal-fueled about as much or more of the state's electricity generation as nuclear power until 2018. Arizona's second-largest power plant, Navajo Generating Station, which was the largest coal-fired facility in the state also closed in late 2019.

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PJM Expansion, Texas Leaders Received Millions in Campaign Contributions, Iron Air Battery Backed By Billionaires and Market Intel

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.

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The Rise of Battery Energy Storage

With the growth of renewables, the need for energy storage is increasing greatly. Battery storage systems are emerging as one of the key solutions to effectively integrate high shares of solar and wind renewables in power systems globally. Battery storage, or battery energy storage systems (BESS), are devices that enable energy from renewables to be stored and then released when customers need power. This battery storage technology plays a key role in ensuring that homes and businesses can be powered by green energy even when the sun is down, or the wind is not blowing for example.

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Renewable Energy Rush by Tech Giants, Solar Power Cons, Coal Production Falls, Tesla Helps CA Grid and Market Intel

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.

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Community Solar: The Demand for Clean Energy

The demand for renewable energy continues to be on the rise as more people are becoming aware of the energy industry's environmental implications. With this increase in demand, the need for expanding clean energy infrastructure is necessary to meet the renewable energy goals. In the last decade, solar has experienced an average annual growth rate of 42%. According to a report released by Solar Energy Industries Association and Wood Mackenzie, solar installations grew 43% year over year, reaching a record 19.2 gigawatts of new capacity.  Overall, 2020 U.S. solar consumption increased 22% from 2019. With the shift towards renewables, there are now more than 100 gigawatts (GW) of solar capacity installed nationwide, enough to power 18.6 million homes. According to the IEA, most of the solar energy in the U.S. was consumed at a residential level and over 2.8 million U.S. households have already gone solar.

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Top 5 Tips for Effective Portfolio Management

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.

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MOPR Update, Heatwave Affects Infrastructure, NRG Retires Power Plants and Market Intel

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. 

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The Future of Energy Storage

Energy storage plays an essential role in the transition towards a carbon-neutral economy. Energy storage supports balancing power grids and saving surplus energy. It improves energy efficiency by integrating more renewable energy sources into electricity systems. Expansion and innovations in storage will also help enhance US energy security and produce a well-functioning internal market with lower prices for consumers. Although energy storage is not new, the demand for it has increased significantly as environmental impacts in this sector have become more apparent.

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MOPR, More power shortages in ERCOT, Renewables are the cheapest source of power and Market Intel

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.”

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RPS Requirements - Is Your Energy Portfolio Compliant?

Renewables have been headlining many news outlets especially with the Biden administration proposing the $2.3 trillion infrastructure proposal to achieve 100 percent carbon pollution-free electricity by 2035. As demand grows for renewables, so has the interest in businesses to go green. However, if you are a retail supplier, there are Renewables Portfolio Standards (RPS) that obligate each retail seller to supply a minimum percentage or amount of their retail load with eligible sources of renewable energy. Renewable energy is energy that comes from resources that cannot be depleted or those that constantly replenish over time such as wind, solar, ocean, hydropower, biomass energy, hydrogen, and geothermal power. It's important to note that the required amount of renewables in your portfolio can also vary depending on the market. This is especially important for suppliers since this could mean major penalties for those suppliers who do not meet their state's requirements.

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