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In This Issue

Most PJM Capacity Prices Likely Lower This Auction: Observers

New England Has Enough Electricity Production Even if a Heat Wave Hits

Natural Gas and Oil Market Update

EIA - Weekly Natural Gas Storage Report

NYMEX Natural Gas Week-to-Week Price Change

Natural Gas Futures - Five Year Price

Tables

NOAA 6 to 10 Day Outlook
weatherweather
Color indicates the probability of forecasted temperatures being above or below a historical average for the period.

 

Market Overviews

Most PJM Capacity Prices Likely Lower This Auction: Observers

Platts | May 12, 2016

The PJM Interconnection's capacity market auction, of which 80% must be capacity-performance resources, for the 2019-2020 year started Wednesday and continues through Tuesday, and industry observers say growing supply and lightening loads indicate lower prices ahead for most areas.

The auction is to acquire 157,092 MW of capacity, and the price cap, excluding congestion, is $448.95/MW-day, compared with $450.86/MW-day for the 2018-2019 capacity auction.

Julien Dumoulin-Smith, UBS Investment Research director for electricity market research, said his organization has lowered expectations to $120/MW-day for most of the PJM footprint from UBS' previous estimate of $140/MW-day for PJM's Reliability Pricing Model auction.

"We see growing confidence on continued new gas entry as well as resolution of demand-response uncertainty arising from the favorable Supreme Court as adding to supply pressure amidst a lower load forecast [year on year]," Dumoulin-Smith said in an email to investors Tuesday.

In January, the US Supreme Court ruled that the Federal Energy Regulatory Commission has the authority to establish rules that promote demand response participation in wholesale power markets.

Dan LoBue, president of Competitive Energy Consulting, said he agreed, in general, with Dumoulin-Smith's conclusions, especially regarding the influence the Supreme Court ruling on demand response is likely to have on PJM's capacity market auction.

"I think the FERC ruling is going to be a big player," LoBue said Wednesday.

However, Dumoulin-Smith said the Chicago area's Commonwealth Edison region has "a potential for higher prices ... above the $215/MW-day posted last year, as nuclear units continue to lose yet more money."

Eric Smith, Tulane Energy Institute associate director, said smaller, older, single-reactor sites are less likely to clear a capacity auction.

"I believe it all has to do with absorbing the high fixed regulatory costs associated with [nuclear plants]," Smith said in an email Tuesday.

In a note to investors, Tudor Pickering Holt noted that Exelon "has decided to make May 31 the deadline to retire early two of its cash-flow-negative" Illinois nuclear plants -- the Clinton plant, at 990 MW, and the two 912-MW Quad Cities units.

"The retirements could be stopped if the [Illinois] nuclear legislation and the upcoming PJM capacity auction produce favorable outcomes, but we think that is unlikely," TPH said.

"We believe the ComEd region could continue to clear at higher levels as we see risk to more units than just Quad Cities and Clinton," Dumoulin-Smith said.

"We agree with presentations delivered to the legislature staff in Illinois recently that under the current forward expectations, prices did not justify units beyond the two contemplated for retirement," he said.

If nuclear generators revise their capacity bids up to compensate for low year-on-year energy prices at the Northern Illinois Hub, he said, "The question is whether new entrants such as demand response will seek to capitalize on this opportunity."

Dumoulin-Smith called demand response a "wild card," because more may be offered in light of the Supreme Court decision, but that trend could be mitigated by the US Environmental Protection Agency's decision to drop an exemption for backup diesel generators used by DR resources to meet their own needs when called upon to curtail load. The exemption expired at the end of April.

LoBue said he thinks stronger prices might result in next year's capacity market auction, in which all resources must meet capacity performance standards, but the situation is not yet in equilibrium, with "reduced demand, retirements and demand-side management a lot more of that happening."

Read More:
http://www.platts.com/latest-news/electric-power/houston/most-pjm-capacity-prices-likely-lower-this-auction-21434367

New England Has Enough Electricity Production Even if a Heat Wave Hits

Concord Monitor | May 12, 2016

Aided by enough solar power to equal the output of Seabrook Station, plus continuing cuts in requirements created by efficiency programs and a system known as demand response, New England should have more than enough electricity resources to meet demand this summer, even during a heat wave.

That’s the prediction of ISO New England, which operates the power grid and wholesale electricity markets in the six-state region. A main job of such Independent System Operators across the country is to observe and tweak the markets to ensure that enough electricity can be generated to meet regional needs. This process has gotten more complicated as electricity systems have been deregulated and renewable energy sources are added to the mix.

The annual report estimates that an extended heat wave averaging 94 degrees, causing power-hungry air conditioning to run overtime all across New England, would require a peak of 29,042 megawatts of electricity, less than the 29,734 megawatts that power plants have guaranteed that they will be able to provide. An additional 500 megawatts more could be squeezed out of those plants, if necessary, the report said.

As a comparison, Seabrook Station can generate up to 1,300 megawatts at any given time.

Adding to the region’s cushion, ISO New England said it can count on “about 557 MW of demand response resources,” in which large electricity customers guarantee to cut back on usage if the grid becomes strained.

The report notes one of the complications of the modern grid: “behind-the-meter” solar power. That refers to photovoltaic systems, such as solar panels on the roof of a house that serve mostly to reduce the amount of electricity used by a customer, rather than to add electricity to the system.

Since these systems are behind the meter, ISO New England has no direct view of what they are doing, and cannot control them or easily predict what they will do at any given time.

The 2016 summer peak forecast factored in 423 megawatts of reduced demand from behind-the-meter solar power.

That figure is considerably below the 1,300 megawatts of estimated maximum output from solar power, because solar panels maximize output about 1 p.m. but peak demand on hot days tends to run from 3 to 5 p.m. or so, when solar panel output is already declining, said Marcia Blomberg, a spokeswoman for ISO New England.

Another challenge of solar power for power grids is that electricity production ends abruptly when the sun sets. That abrupt change forces other power plants to quickly make up the difference in production, an issue which will only become more difficult to handle as solar power increases.

Natural gas presents another complication. ISO New England noted that gas pipelines traditionally shut down for maintenance work in summer because natural gas was formerly used almost entirely for heating, leaving pipelines less busy in warm weather. Those maintenance shutdowns must now be factored into power forecasts.

Last summer, ISO said demand for power peaked on July 20 at 24,398 megawatts. The all-time record for peak demand was set Aug. 2, 2006, when demand reached 28,130 megawatts after a heat wave.

Read More:
http://www.concordmonitor.com/enough-spower-for-summer-says-ISO-1777773

Natural Gas and Oil Market Update

Arrow

Oil Soars Past $46 to a More Than Six Month High

MarketWatch | May 12, 2016

Oil futures soared past $46 a barrel on Wednesday to settle at their highest level in more than six months.

The climb was supported by a U.S. government report that revealed an unexpected weekly drop in crude inventories and a ninth straight week of falling domestic production.

  Arrow

Stubborn Natural Gas Supply Imperils Best U.S. Rally in 14 Years

MarketWatch | May 12, 2016

Natural gas futures have soared since March on speculation that supplies are finally falling after a decade of gains. Production numbers tell a different story.

Prices have gained about 30 percent from a 17-year low in March, the biggest advance for the period since 2002, as investors including Greenlight Capital's David Einhorn bet the market would put a dent in supply.

EIA - Weekly Natural Gas Storage Report

EIA - Weekly Natural Gas Storage Report

Summary
Working gas in storage was 2,681 Bcf as of Friday, May 6, 2016, according to EIA estimates. This represents a net increase of 56 Bcf from the previous week. Stocks were 816 Bcf higher than last year at this time and 813 Bcf above the five-year average of 1,868 Bcf. At 2,681 Bcf, total working gas is above the five-year historical range.

NYMEX Natural Gas Week-to-Week Price Change NYMEX Natural Gas Week-to-Week Price Change

Natural Gas Futures - Five Year Price ($ per mmBtu)

NYMEX Natural Gas Week-to-Week Price Change - Five Yearly Snapshot

Disclaimer: The information contained in these reports is gathered from public and/or internal sources and is presented solely for the convenience of our customers and Newsletter Subscribers. Patriot Energy Group makes no representation or warranty, express or implied as to the accuracy or completeness of the information set forth in this newsletter, and Patriot Energy shall not have any liability to any person or entity resulting from use of this information in any way.
 
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