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| Thursday Sep 27, 2018 | |
| The PJM fuel mix just reached new lows in the coal to gas ratio. The discovery of the Marcellus and Utica shale basins located within the PJM footprint have propelled the construction of new natural gas combined cycle power plants. These generators are among the most efficient facilities on the grid with heat rates that continue to decline. With cheap fuel and efficient operations, the facilities’ break even costs allow them to run as baseload generation. This has driven coal higher up the supply stack causing less efficient units to retire. Looking at Figure 1, we can see the coal to gas ratio has trended lower throughout 2018 when compared to the previous year. Earlier this month, we hit a new low as the ratio fell past the 0.6 level. Figure 1 | Year over Year Coal to Gas Ratio ... » read more | |
| Wednesday Sep 26, 2018 | |
| Over the years, California has been on the forefront of many conversations. If you go all the way back to the mid-90's deregulation was making its way through the regulatory and political parties. Once the quirky rules were in place, who could forget the California Energy Crisis in the early 2000's. Once all the smoke cleared from the fallout, the California power grid was trying to rebuild itself into the powerhouse it once was. It was just after the halfway point of the new decade when the grid went from a zonal to a nodal market with both a day-ahead and real-time market. As things started to rock and roll, the system operators introduced what was known as the SCE Limit, which was a stipulation that a certain amount of energy needed to be procured within ... » read more | |
| Tuesday Sep 25, 2018 | |
| We have seen an unbelievable jump in Alberta natural gas demand this year. The expansion of oil sands operations as well as a big shift in the provincial generation dispatch from coal to natural gas has pushed the consumption up by 1 BCF per day compared to similar conditions last year. That is a gain of 19% in one years time. The jump in demand has helped natural gas producers avoid a catastrophe. Restrictions due to NGTL expansion activities have locked in production volumes this year. That means they have seen big limitations to both export and storage markets that have caused big drops in the AECO cash prices. Figure 1 | NGTL System Demand for 2015 - 2018 Cheap natural gas prices have helped a good deal of this demand growth. But in the coming weeks we will see a demand surge ... » read more | |
| Monday Sep 24, 2018 | |
| At this time last week, the Carolinas were getting ravished as Tropical Storm Florence was 48 to 72 hours into making landfall. The onslaught of such a storm created massive flooding in many areas including the path of several nuclear facilities. As a result, we walked in last Monday with NRC posting several thousand megawatts of capacity offline which meant that the power markets implied heat rates would be shifting up as a big chunk of baseload energy was lost. Figure 1 | NRC Daily Capacity Offline - Year on Year Comparison Figure 1 details the movement discussed above as the dark blue line represents 2018. You can clearly see the straight line up as of the 17th of September, where the offline generation capacity shot up from just over 5 GW to 15 GW. As the week ... » read more | |
| Friday Sep 21, 2018 | |
| Renewable transactions can take many forms. Virtually all transactions involve the conveyance of RECs – after all, that’s what makes a transaction “renewable.” Common transactions include a physical transaction with bundled RECs, fixed price REC deals, and floating price REC deals (known as contracts for differences) where the REC price goes up as power prices go down and goes down as power prices go up. The deal structure is typically dictated by the buyer, provided that the structure and pricing can be financed. Many buyers prefer to purchase bundled energy and RECs. Some corporates are concerned with derivative accounting of financial transactions. In California, the state RPS rules require that RECs be bundled with physical power. The physical delivery of ... » read more | |
| Thursday Sep 20, 2018 | |
| The 7th Circuit Court of Appeal upheld the Illinois Zero Emission Credit program last Thursday allowing the nuclear subsidy to remain in place. The Zero Emission Credit (ZEC) was passed in 2016 and effectively subsidized nuclear facilities in Illinois. The credit allowed uneconomic nuclear units to run by putting a price on the social cost of carbon. However, this was not a direct fixed cost but a price collar that would allow qualifying facilities their approximate break even cost to continue operations. A group of independent power producers (IPPs) formed an alliance and immediately filed suit against the nuclear facilities citing a distortion in power prices. The court initially ruled in favor of the subsidy, but the opposing group would not be deterred taking the case to the court of ... » read more | |
| Wednesday Sep 19, 2018 | |
| As we worked our way through the 'Dog Days of Summer' months, SoCal Gas was busy putting gas in the ground at Aliso Canyon. In fact, there were times that price did not seem to matter as the daily injections were massive despite the fact that the bilateral cash price at SoCal Citygate was telling entities to burn the gas not store it. This is an illustration of the wackiness of California when it comes to issues in either the power or natural gas market. Figure 1 | SoCal Citygate Cash Prices - July through Current Once we hit the middle portion of August, SoCal Citygate prices started to fall as the daily indices moved out of the double digit level and was coming back into reality. This was due to the fact that SoCal Gas put the peddle to the medal and made up some ... » read more | |
| Tuesday Sep 18, 2018 | |
| The outages and maintenance items that have riddled the NGTL system have been going on through much of the summer. The system has had delivery and receipt issues for the better part of the past five months. The big drop in AECO cash prices has been a product of those capacity problems which has helped natural gas generators that are dispatched onto the AESO system. The maintenance and outage problems have come to a head this week as the climate across the province has flipped from cooling to heating load. The call on natural gas volumes from the ResCom demand has further bound the NGTL system forcing many generators to cut back on gas consumption. Despite the daily heat rate results, many gas generators have been left in the cold. Figure 1 | Calgary Actual and Forecast Weather for ... » read more | |
| Monday Sep 17, 2018 | |
| As we hit the midway point of September, the 2017-2018 Pacific Northwest water year is slowly coming to an end. We thought it would be a good time to take a look back at what this year had to offer as well as what lies ahead for the 2018-2019 water year. Before we dive into the details, it should be noted that each water year has an official start date of October 1st of the current year and ends on September 30th. This allows the system operators an entire summer to take a look back on what transpired between the January and July time period as well as make sure the water levels are where they need to be in the fall prior to the precipitation levels increasing in the form or rain and/or snow. Looking back at 2017-2018 water year, the January to July time period is ... » read more | |
| Friday Sep 14, 2018 | |
| The most interesting part of economics for me is shining light on subtle and sometimes unintended-second order effects of a change in policy or incentive structure. The Tax Cuts and Jobs Act of 2017 dramatically lowered corporate tax rates with the highest rates dropping from 35% to 21%. A second order impact of the lower tax rates has been an increase in the price that tax-equity-financed wind projects which receive production tax credits are willing to sell their output into the short term markets. This newsletter tracks the impacts that changing tax rates have on wind generation offer prices in the ERCOT market. Before we get to the current unintended consequence, let’s trace this story back a few iterations to the first unintended consequence. The story goes like this. » read more | |
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