The Office of Electric Reliability and the Office of Enforcement, have drawn up the Summer 2015 Energy Market and Reliability Assessment. The report is the FERC staff’s annual opportunity to share their summer outlook on the electricity and natural gas markets and reliability matters to better inform the commission’s understanding of current and future trends.
- Market conditions going into the summer will reflect the continued low natural gas prices that have resulted from robust production, as well as the recovery of fuel stockpiles at coal fired power plants.
- Regional electric system reserve margins are adequate, despite modest growth in load, which is primarily attributable to increased industrial activity.
- The historic drought in California and the West has entered its fourth year and is an area of particular concern. This may lead to elevated energy prices; however, both the NERC and the California ISO have concluded that the current situation is not a threat to reliability.
The Energy Information Administration reported that power plant coal stockpiles have been recovering since summer 2014; however, the forecasted stockpile levels are expected to remain modest throughout 2015. In some regions, localised issues have resulted in limited rebuilding of these stockpiles. If natural gas prices were to rise during the summer, increased coal fired generator output may result in coal supply issues to reemerge in the Midwest.
The ongoing drought conditions in California and the West will limit the availability of hydroelectric generation over the summer. In late August, ISO-NE may experience some impacts to the region’s natural gas fired generating fleet when Spectra Energy begins maintenance and expansion of the Algonquin pipeline.
Capacity forecast to exceed demand
EIA has forecast a 2.9% increase in electric demand from 2014, reflecting an expected return to more typical conditions from last year’s unusually mild weather. This compares to a weather adjusted increase of approximately 1% over last year’s forecast. This growth is driven primarily by the commercial and industrial sectors, as opposed to the residential sector, which is a reversal from the past few years.
The historic correlation between economic growth and increased electrical demand has weakened in many markets. A recent report by the NYISO attributed this declining linkage to a combination of factors, including the expansion of energy efficiency programmes and growing impact of behind the meter generation, which includes residential solar. If continued, this shift may further complicate the forecasting of energy demand, based on economic growth.
Meanwhile, the total generating capacity in the US has decreased by about 3%, primarily because of increased coal generator retirements. This is a continuation of the trend that was seen last year. In contrast to coal, NERC forecasts an increase of approximately 3.5 GW in wind generation capacity over last year, or approximately 6% and brings the national wind total to approximately 65 GW. NERC is also projecting a net increase of approximately 2 GW of installed utility scale solar capacity for this summer, though more solar generation is planned to come online this summer.
One notable transmission project is the rebuilding of the 500 kV Susquehanna Roseland power line, which runs between Pennsylvania and New Jersey. It was placed into service on 11 May and is expected to lower congestion and increase market efficiency in this region of PJM.
Natural gas prices
Forward prices are not a predictor of actual prices, but reflect the cost of hedging market risk and can help us understand market dynamics.
Going into the summer, the average Nymex futures price for June through August is US$2.89/million Btu, which is 40% lower than in 2014. This is consistent across the country, with the Boston area’s Algonquin Citygate showing the largest differential, at 46% below last year, and averaging US$2.96/million Btu for the summer. This can be attributed to a 5.7% y/y increase in natural gas production and storage inventories that are 71% higher than in 2014, or 4% below the 5 year average.
The injection season began on 3 April with 1.5 trillion ft3 of natural gas in storage, 79% above last year. Since then, weekly injections have averaged 65 billion ft3, versus 47 billion ft3 last year. If injections continue at this rate, inventories could set a new record by the end of the injection season on 31 October.
Coal to gas
With summer futures prices below US$3.00/million Btu in most regions, natural gas is expected to be competitive with coal on a US$/million Btu basis, when adjusted for the relative efficiency of natural gas versus coal fired electric generation units. The only region where summer futures are above US$3.00/million Btu is Northern California; however, since the region has no coal fired plants, it will not experience any coal to gas switching.
Any further downward price pressure would give natural gas an even greater advantage in the supply stack and is comparable to 2012, when the Henry Hub price dropped to the lowest level in over ten years, averaging US$2.65/million Btu. According to industry estimates, this resulted in 5.1 billion ft3/d coal to gas fuel switching. Estimates for this summer indicate that a US$2.50/million Btu natural gas price could result in 4 - 5 billion ft3/d of incremental natural gas demand from power generators.
Read the Summer 2015 Energy Market and Reliability Assessment in full here.
Adapted from report by Rosalie Starling
Read the article online at: https://www.hydrocarbonengineering.com/gas-processing/15052015/ferc-summer-2015-energy-market-and-reliability-assessment-783/