Energy Insider Blog

There has been significant debate, quite heated at times, surrounding the future structure of the Texas electricity market that the Electric Reliability Council of Texas (ERCOT) manages. The discussion has been centered on several topics, including how to ensure that there is sufficient generation capacity in the state to meet future electricity needs. On October 25, 2013, without a final vote, two out of the three Public Utility Commission of Texas (PUCT) commissioners expressed support for a mandatory reserve margin to address resource adequacy concerns. At this time, ERCOT’s board does not plan to take action on proposed changes to the target reserve margin until the PUCT provides further direction. In the meantime, ERCOT has been working on revamping its load forecasting assumptions and its methodologies are being re-examined and may be more important than ever. ERCOT’s staff has also been working to refine its load forecast models and process, and will update the board on these proposed changes on December, 10,2013. Therefore, the release of the next Capacity, Demand and Reserve report will be postponed.

The U.S. 2011/2012 winter was the fourth warmest on record. NE energy end users who were exposed to the spot market were rewarded with very low prices. Nevertheless, the U.S. 2012/2013  winter was significantly colder despite being the twentieth warmest winter on record. Despite a mild winter start, last January had a large number of days below freezing and February was the fifth snowiest on record. Consequently, natural gas and electricity end users in NE who were exposed to index prices, found themselves facing significantly higher energy costs on the spot market. During these two months, unusually cold temperatures triggered price spikes due to forced plant outages, which caused reliability problems within the grid. To circumvent these issues, the entity responsible for maintaining electric reliability, the New England Independent System Operator (ISO-NE),  was forced to dispatch higher cost power plants. The chart below shows historical monthly Real-Time prices across multiple Load Zones. Across these Load Zones, the average prices for the months of January 2013 and February 2013 were $83.54/MWh and $107.49/MWh. These prices were significantly higher than this period the previous year.

Part 2 of the 4 Major Energy Developments in 2013 deals with two more trends that have impacted wholesale market prices this year:

As we near the end of the summer, it is worthwhile to examine trends that have had an effect on energy procurement in 2013. The focus will be specifically on the deregulated electric and natural gas markets, through the first two-thirds of 2013. The first two developments that will be covered in this blog are:

The United States faces a new future with a real possibility of energy independence rather than some pie in the sky notion predicated on unproven technologies.  One of the key drivers behind this new opportunity for energy independence is the emergence of shale gas, particularly in the Marcellus Shale in Pennsylvania.  While there are other areas of the country with larger shale deposits, the Marcellus holds particular benefits because of its proximity to the major population centers along the East Coast.  The boom in natural gas and other petroleum rich products along the East Coast has created opportunities for energy management consultants to manage their clients overall energy expenditures in new ways.

At the Texas Public Power Association conference on July 24^th, Trip Doggett, the CEO of the Electric Reliability Council of Texas (ERCOT) provided a tremendous amount of information and insight in to the state of the Texas wholesale power market.  Some of the key areas he covered included:

According to the Energy Information Administration (EIA), the electricity generation sector is responsible for over 90% of the total coal consumption in the U.S., and coal fired generation has historically been the most prominent source of electricity production.  As seen in the graph below, however, natural gas has been increasing its market share as generation feedstock over the past couple of years. In February 2012, Coal and Natural Gas had the same percent share of power generation in the U.S.

In 2012[1], the Environmental Protection Agency (EPA) suffered a legal set-back as the Court of Appeals for the District of Columbia (D.C. Appeals Court) struck down the agency’s Cross-State Air Pollution Rule (CSAPR).  CSAPR set emission reductions goals for sulfur dioxide and nitrogen oxide for not only the pollution sources in the state, but also attempted to regulate these emissions that are blown across state lines. 

As business has become increasingly competitive, the importance of controlling costs wherever possible has increased as well.  In various parts of the country, one area of potential cost control involves energy procurement.  While the opportunity to control energy costs exists, understanding this opportunity and capitalizing on it requires careful analysis and planning.

Typically, discussions about drought conditions center on the impact a lack of rain has on agriculture; however, water and drought conditions have a significant impact on the energy sector as water is used for cooling purposes in power plants and the lack of water can negatively impact generation, creating stress on the electric grid during periods of high demand.  While the impact of water on power plant output has been understood for years, the explosion in fracking has added another pressure point on the water supply.