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Choppy Waters: Power Market Volatility

Posted on by m.usman@jjtestsite.us

By: Chris Amstutz

Businesses across the country are taking notice of the rapidly changing power generation mix. Is it simply due to the sight of wind and solar farms popping up along the highway? No, rather it is due to something more vital: their bottom line. From California, to Texas, to the Northeast, the impacts of an increase in power generation from renewable sources and a decline in coal-fired power are being felt. What lies on the river ahead? Recent news and pricing movements across the U.S. are showing signs of a straining grid, primed for increased volatility. Volatility presents opportunity in the energy industry and Choice Energy Management is working to remove the blindfold and safely guide your business to a stream of savings (a more enjoyable experience than re-watching Netflix’s “Birdbox” movie). Our first blog post of the roaring 20’s turns the rudder against the stream to dissect the current path for regional power market structures.

Nationally, we have seen a huge shift in the generation mix since 2014. While the chart above gives the breakout in terms of percentage change for each source of electricity, it does not fully tell the story for what is happening in power markets across the United States.  The introduction of intermittent electricity assets to the grid has posed new concerns and challenges that need to be addressed. More plainly speaking, when the wind doesn’t blow and the sun doesn’t shine, how will the electricity grid adapt to keep up with the power demands of end users. Without diverging down the deep, winding stream on the physics and technical nuances of power markets, here are the regions we are monitoring more closely for volatility in 2020:

CAISO: The push towards a Renewable Portfolio Standard for California of 50% by 2030 continues. The state legislature has remained hostile towards fossil fuel and nuclear generation assets. Many believe that the state government is challenging the grid too hard and too fast. The three main utilities (PG&E, SoCal Edison and SDG&E) are all pushing for rate hikes stemming from wildfire liabilities and the increased regional cost of natural gas. This market has already seen tremendous volatility, but tensions have calmed for now.

ERCOT: The latest report on Capacity, Demand and Reserves for ERCOT has projected a 10.5% reserve margin for summer 2020. The margin is projected to loosen to 15.2% and 13% in ’21 and ’22 respectively. Lost base-load generation from coal retirements has not fully been replaced by natural gas fired units. The renewable build-out has been substantial and is expected to grow to 15% of all generation utilized by the end of 2021. Low regional natural gas prices have created a scenario where power prices are near decade lows for all but the summer months. To entice new capacity, generators will need to be profitable in all months of the year, something that is hard, given the low prices 10 out of the 12 months (see below).

PJM: The current battle between the PJM regulators and the Federal Energy Regulatory Commission (FERC) over renewable energy subsidies distorting the market will likely not be solved soon. FERC’s latest order of expanding the Minimum Offer Price Rule (MOPR) aims to ensure competitive generation investment but may simply be an indictment of the flaws in the PJM forward capacity pricing structure.  The outcome of the expanded MOPR will likely beget more regulations from state legislatures, and PJM futures prices will be susceptible to the stroke of a pen.  

The depth of nuance affecting prices in region specific power markets is enough to make even the most avid energy blog connoisseurs head spin. The topics discussed in this blog warrant much deeper discussions than the individual paragraphs present. From 2014 to today, the soft trickling whisper generated from the impact of renewables has grown to a small but roaring stream. Time will tell how choppy the waters will get but there is no denying the potentially volatile effects of incorporating renewable energy into regional ISO’s. Until the day analyzing power markets becomes black and white, see what more Choice! can do to ensure smooth sailing.

Confidential: Choice Energy Services Retail, LP.

Nuclear Power Part II: Ongoing Debate

Posted on by m.usman@jjtestsite.us

By: Chris Amstutz

https://gfycat.com/blaringcheeryamericancrayfish-miniseries-chernobyl-belarus-ukraine
HBO’s Chernobyl

Many believe that we are at a crossroad as a species due to CO2 emissions from fossil fuels. Plans such as the Green New Deal and other energy sector de-carbonization plans have been in the news lately, but surprisingly none have included ideas about nuclear power. In our first blog, Nuclear Power: The Half-Life of an Industry, we discussed public opinion and the economics of nuclear power. Since that time we have seen more of the same negative public opinion, and a greater political push for de-carbonization.  Shows like HBO’s Chernobyl continue to cast a negative light on a technologically established energy source that could help assist in accomplishing these political goals. Opinions aside, the debate over nuclear energy continues, and Choice! Energy Management is monitoring the implications of any potential regulatory changes.

Many who saw HBO’s latest series “Chernobyl” were horrified by the visualization of the failed Russian power plant (cue the show’s creepy soundtrack). While it may have been great for TV, this popular show was blamed for misleading public opinion when it comes to the industry (see what they got wrong here). For many, this becomes their sole opinion about nuclear power. While it is unknown if public opinion has really hampered the industry, it is known that subsidies granted to other carbon-free energy technologies, and the growth of natural gas fired generation, can be to blame. Critics of nuclear power argue that nuclear facilities give off radiation that can result in cancer, and even Seinfeld couldn’t make that a joking matter. Disposal of spent uranium is also a point of criticism. For these criticism’s we turn to some “alternative facts”. US nuclear power has provided reliable, carbon-free energy for 20-25% of our electricity for the last 20 years.  For comparison, in 2013 all other carbon free electricity sources totaled 12% and today are up to 19%. Nuclear facilities require significantly less land space and also have less physical impacts on wildlife than solar and wind energy. Also, when you factor in the reliability and ability for electricity to easily be dispatched when needed, nuclear could certainly assist with the movement towards a carbon-free grid.

The Presidential election of 2020 nears and climate change policy has been in the platform of most Democratic candidates. This policy debate will center on the energy industry and many may come to the conclusion that renewable energy technology is not sufficient at this time to meet ambitious political goals. The next step would be an evaluation of the carbon free benefits of nuclear power. While the EIA is forecasting a 17% reduction in nuclear generation over the next 5 years, recent news in Ohio about First Energy postponing the retirement of two nuclear facilities has many in the industry hopeful for future government support. Currently, there is 1,670 Megawatts (MW) worth of nuclear generation capacity being built or planned to be built in the next 5 years. This is countered with 8,312 MW of capacity (8% of total) planned for retirement in the next 5 years. A trend that is not likely to reverse without the help from market forces i.e., an increase in Natural Gas fired generation cost, or a government policy change i.e., a subsidy for carbon free power.

Is nuclear power the most underrated energy source we have in the US? Maybe, but the amount of nuance in electricity markets necessitates proper analysis. If the US is to really make a carbon-free “green” energy push, it would make sense that nuclear power is in the discussion. The debate over energy will continue on and it hopefully won’t be as serious or depressing as the HBO Chernobyl series. In the mean time, we will continue to see growth from natural gas fired generation and renewable generation, but it may not be enough to accomplish the political goals of carbon-free emission reduction of 60% or more. Electricity markets will remain in flux and Choice! Energy Management will continue to monitor potential structural changes during this time of debate.

Confidential: Choice Energy Services Retail, LP.

Jeopardy – Green New Deal

Posted on by m.usman@jjtestsite.us

By: Chris Amstutz

What better of a way to talk about the Green New Deal than by comparing it to America’s favorite guessing game? We’ve seen talking heads coast to coast debate the merits of this idea to revolutionize the energy grid, many of whom haven’t thought twice about how their iPhone gets charged at night. While the game of Jeopardy operates in fact base questions, there seems to be a lack of understanding about what is truly being proposed in Congress. Choice! Energy Management is not in the business of influencing politics (thankfully), but when politics encroach upon the energy markets, we are obligated to analyze the risks. We may not be Alex Trebek, but we do know a thing or two about energy markets and how the government may affect them.

Category: The State of Green

$200: This is the fastest growing electricity source … “What is, Wind Energy.”

$400: 2018 was equal to this past year for national CO2 emissions … “What is, 1992.”

$600: Since 2005, 66% of America’s total reduction in CO2 emissions has come from the help of this fuel source … “What is Natural Gas.”

$800: This US State has seen the largest generation of non-hydro renewable energy … “What is, Texas.”

$1000: This beer-loving European country has implemented similar, national energy initiatives … “What is, Germany.”

America has taken great strides to reduce its carbon footprint. This has mainly been due to free market natural gas prices becoming cheaper than coal prices, and infrastructure changes will continue to reinforce this.

Category: “Bright” Green Ideas

$400: The 2019 Green New Deal wants the U.S. to have net-zero carbon emissions by this year … “What is, 2030.”

$800: This bovine by-product’s, environmental impact has become a source of mockery … “What is, methane.”

$1200: This type of taxation has been proposed to pay for a Green New Deal … “What is, a Carbon Tax.”

$1600: This amount of technical, grid solutions have been proposed in the Green New Deal … “What is, Zero.”

$2000 (Daily Double): This has been the rumored price tag for the Green New Deal energy changes … “What is, $15-25 Trillion” (Any number will be accepted due to hypothetical nature of the question).

While details are slim in the Green New Deal, opponents argue that the proposal is a non-starter, for we do not currently have sufficient green technology to meet the physical realities of the fluctuating grid (especially without increased nuclear power). Proponents argue that the death of our planet, and the potential for a $500 billion reduction in GDP, due to climate change, make the cost of the Green New Deal irrelevant. Click here for an open minded Twitter thread on the logistics of the topic. The fate of the planet very well could be a question that only Alex Trebek has the answer to.

Final Jeopardy Category: Greener Pastures?

Question: This term can best be used to describe the current conversation about the Green New Deal relating to energy?… (Catchy final tune)… “What is, Symbolic.” At the end of the day, there is no indication that we are nearing the passing of any federal legislation for green energy (outside of existing subsidies). Recently, voters in the state of Washington voted down a proposed carbon tax. Other legislation like the Climate and Community Protection Act (CCPA) proposal in New York, likely has little chances of passing in its current form. The theme of promoting green energy to curb climate change will not be going away anytime soon. All of the current Democrat Party presidential candidates are supporting the federal Green New Deal. As we stand today, any government intervention in the energy markets will likely result in increased prices for consumers. Whether for, against, or indifferent, the talks about green energy have escalated, and Choice! Energy Management will continue to monitor the implications on the federal and state levels.

Confidential: Choice Energy Services Retail, LP.