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Electricity and Rock: Still Not Friends

By Evelyn Teel

In a previous blog post, we discussed findings from the U.S. Geological Survey (USGS) that the I-95 corridor is particularly at risk of grid outages in the event of a geomagnetic storm. You can read that blog post here: https://avalonenergy.us/2018/07/electricity-meet-rock/

Further research has been conducted, and a new report from the USGS was released earlier this year. You can read the full report here: https://doi.org/10.1029/2019SW002329.  

The research is based on measurements from geomagnetic observatories and magnetotelluric survey sites throughout the United States, and models the impact of a once-per-century geomagnetic superstorm. Based on more than three decades of field data, the researchers modeled the voltages that could be generated within US high-power transmission lines in the event of a superstorm. 

In addition to the previously identified risks along the East Coast, the report identified three additional areas of high risk: the Pacific Northwest; the Upper Midwest; and the Denver, Colorado area. The analysis only covered two-thirds of the continental United States, so unidentified areas of high risk may still exist in the South and Southwest of the country.

The two images below, from the report, illustrate modeled voltages and electric fields throughout the US transmission grid. Lighter colors indicate higher risk.

Lucas, G.,  Love, J. J.,  Kelbert, A.,  Bedrosian, P. A., &  Rigler, E. J. ( 2020).  A 100‐year geoelectric hazard analysis for the U.S. high‐voltage power grid. Space Weather,  18, e2019SW002329. https://doi.org/10.1029/2019SW002329

Areas of high risk are largely attributable to the geological structures of those areas, for example the crystalline rocks of the Superior Craton in the Upper Midwest and the crystalline rocks of the Piedmont Province in the Eastern US, which trends northeast-southwest from Maine to Georgia between the Appalachian Mountains and the Atlantic Coastal Plain. These electrically resistive rocks (i.e., rocks that impede the flow of electricity) in the upper mantle generate a higher geoelectric hazard. Simply put, if the generated electricity would not be absorbed into the ground, it could cause extensive damage as it remains on the surface. The interaction of the geologic structure with the geoelectric fields and the transmission line geometry results in higher storm-induced voltages on the power grid along with a higher probability of more extensive grid damage.

Geomagnetic storms and their effects do not come without warning. The National Oceanic and Atmospheric Administration (NOAA) Space Weather Prediction Center (SWPC) reports on global magnetic deviations throughout the day, using a measure called the K-index. Working with data collection centers around the world, SWPC consolidates readings into a global Kp index every three hours. SWPC is also able to issue alerts when values surpass specific thresholds, which serves as a warning system for potential geomagnetic issues. More information about the K-index can be found here: https://www.swpc.noaa.gov/sites/default/files/images/u2/TheK-index.pdf and current and historical planetary K-indices can be found here: https://www.swpc.noaa.gov/products/planetary-k-index

Further research is ongoing, and there is certainly more to learn about this natural hazard. Ideally the data will be used by utility companies to evaluate the risks within their own geographies, identify potential solutions, and even possibly use this information to inform future transmission grid construction. Though not covered in the report, geomagnetic storms also can impact distribution lines, electricity generation facilities, and related equipment; the entities that oversee these components of the electric system should also evaluate their risks and take action where possible. Canada and Finland have taken technological steps to reduce the impact of geomagnetic storms, such as through transformer design (https://fas.org/irp/agency/dod/jason/spaceweather.pdf), that can inform approaches within the United States. 

On an individual basis, as we noted previously, there are not many options for mitigating this hazard. Some facilities may choose onsite or distributed generation as a mitigation (you can learn more about distributed energy resources here: https://avalonenergy.us/2020/04/distributed-energy-resources-give-you-options/); however, depending on the types of distributed energy resources used and the strength and geographic impact of the geomagnetic storm, distributed resources may also be susceptible to failure. Faraday cages can block electromagnetic fields, though they also can block helpful signals like radio waves, cell phone signals, and wi-fi. 

Our modern reliance on electronics makes us particularly susceptible to geomagnetic storms at this point in history. Previous storms have knocked out communication channels and caused blackouts, though the largest known storms occurred before the huge explosion in electronics we have seen in the past few decades. The Carrington Event in 1859 was the largest recorded geomagnetic storm, while a much smaller 1989 storm caused a blackout in Quebec, Canada. You can learn about these events and more on NASA’s website: https://science.nasa.gov/science-news/science-at-nasa/2008/06may_carringtonflare.

We will continue to keep an eye on this developing research, and will share any additional findings as they are published. In the meantime, we count ourselves lucky to live in a time when the scientific community understands this issue, is doing the research necessary to gauge the impact, and may find ways to mitigate the effects.

Thank you to Jeff Dowdell and Ralph Russell for their contributions to this article.

The Avalon Advantage – Visit our website at www.avalonenergy.us, call us at 888-484-8096, or email us at info@avalonenergy.us. 

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Distributed Energy Resources Give You Options

By Evelyn Teel

In the earliest days of electricity, generation happened close to where the electricity was used. A small hydro facility might have been used to power a single factory, or a coal-fired generator might have electrified a small town. As demand for electricity grew and we developed the capability to move it over long distances, power plants were often built in more remote areas. This allowed us to leverage distant resources such as waterfalls, build larger plants that could not be accommodated in denser areas, and keep pollution from population centers. Generation now may be coming full circle, with increased interest in Distributed Energy Resources (DER) – that is, a source or sink of power, whether located on the electrical distribution system or behind a customer meter, that operates near the facility in which it is used.

DER can provide power to one building, a campus, or even a town. In many cases, DER are connected to the grid to ensure stable, efficient power availability. If the distributed resources are not producing all the electricity the facility needs, the facility can pull power from the grid. Likewise, if the distributed resources are producing more electricity than the facility needs, the excess, in some cases, can be sold to the grid. Some systems are able to be disconnected from the grid, or “islanded,” in the event of an emergency. This means that if the rest of the grid goes down or experiences blackouts, the facility can still operate on its own, potentially at a reduced level. In some cases, the facility is permanently islanded, and therefore is disconnected from the grid entirely. This is less common, but can be an option for facilities operating in remote locations or requiring extra security.

Types of Distributed Generation

Depending on the energy requirements of the facility, the characteristics of the surrounding environment, and any organizational preferences, distributed generation can be composed of a variety of resources. The most basic type of resource might be a generator, providing emergency power in the event of a grid outage. From there, solutions can get increasingly complex, and may include one or multiple types of generation. 

Solar, a common distributed resource, must be balanced by either grid connectivity or other resources, due to its intermittent nature. Natural gas-fueled microturbines can be used, and a combined heat and power system can enable capture of waste heat from those microturbines, for space or water heating. Combined heat and power also can be leveraged in conjunction with industrial processes that have a thermal load. 

Microgrids may incorporate battery storage in order to store excess electricity for times onsite generation is not producing. The list of possible distributed generation resources goes on: wind, hydropower, geothermal district heating, geothermal heat pumps, waste biomass conversion to renewable natural gas, waste incineration, anaerobic digestion, and more. Careful consideration should be given when developing a system to ensure that the selected type(s) of generation is/are robust, reliable, and efficient.

Benefits of Distributed Energy Resources

As the costs of DER resources fall – either through reduced equipment costs or decreases in fossil fuel prices – there can be cost savings to implementing distributed generation resources. Energy costs may also become more predictable if not tied to wholesale electricity prices. 

One hidden source of cost savings with distributed generation relates to the fact that, when transmitting power over long distances, some of the electricity is lost in the form of heat. These transmission and distribution line losses are less of an issue when power is generated close to where it is used (i.e., in distributed generation). Though consumers do not directly pay for this lost electricity (approximately 5 percent of generated utility electricity), it is wrapped into the total cost of energy. When generation happens behind the meter and close to a facility, the consumer does not end up paying for lost electricity. Less wasted energy also means less unnecessary pollution. 

Microgrids, or distributed generation that can operate separate from the utility grid, can improve reliability and be integral to disaster planning. When a facility is no longer fully reliant on the grid for power, it is less susceptible to issues like grid outages and brownouts. If a facility is equipped to draw power from distributed resources, storage, and the grid, it benefits by having a fallback in case one power source fails. It is important to note, however, that some causes of grid outages, such as severe weather, natural disasters, or an electromagnetic pulse, can simultaneously damage distributed resources and grid resources. In addition, it is important to note that utilities may add “standby” charges in order to provide fallback power.

In addition to enhancing reliability, DER can also enhance security. Especially for facilities that require 24/7 uptime, distributed resources can provide a backup in the event that utility grid service is unavailable. These distributed resources may be as simple as backup generators, or may be a complex microgrid with multiple power sources, including storage. Facilities that require the utmost security may choose to be able to island, becoming reliant exclusively on distributed resources.

Case Studies

Incentives exist to implement some types of distributed generation, though they can vary over time. For example, there are incentives to support the installation of onsite photovoltaic (PV) solar arrays, but they are changing. The federal investment tax credit (ITC) for PV solar dropped to 26% of capital cost this year; it drops to 22% in 2021 and further to 10% in 2022 and thereafter. 

Particularly taking into account incentives, the financial benefits of distributed generation can be quite compelling. Here is an example of a planned 2,000 kW onsite solar PV generation system. Electricity produced via solar PV creates solar renewable energy credits (SRECs), which can be (I) retired, (II) sold to electricity load serving entities (LSEs) that must comply with state renewable portfolio standards (RPS), or (III) sold to end users who wish to further green their supply. The sale of SRECs in this case generates income each year. In the first year, these SRECs are worth approximately $113,704. The initial investment cost is just over $3.6 million. However, after accounting for the federal investment tax credit (ITC); bonus depreciation; the SREC income; and the energy savings realized by generating power onsite, the actual first year cost of the project is just over $1.7 million – less than half the total price tag. The breakeven point – the time at which the project is expected to have paid for itself – is six years. Given that the lifespan of solar panels is approximately 25 years, this leaves plenty of time for significant cost savings. 

The value of onsite generation might be measured by more than just its financials, however. We also calculated that, over the estimated 25 year lifespan of the solar panels, the facility would save on carbon emissions equivalent to: more than 45 million pound of coal not burned; nearly 14,000 tons of waste recycled rather than landfilled; more than 4.6 million gallons of gasoline not consumed; or 679,763 tree seedlings grown for 10 years. This analysis indicates not only the financial upside of the project, but also the long-term carbon savings it enables.

Below are summary financial analyses related to three under development distributed generation (onsite solar PV) projects, including the project outlined above (Project A).

Project AProject BProject C
Onsite Solar2,000 kW1,700 kW2,000 kW
Year 1 Summary$$$
Initial Investment(3,644,028)(2,872,343)(3,717,150)
26% Federal ITC947,447746,809966,459
Depreciation Cash Value650,459512,713663,511
Energy Savings (year 1)205,732220,028263,612
SREC Income (year 1)113,704130,554367,507
Year 1 Cash Flow(1,726,686)(1,262,239)(1,456,061)
Financial Statistics
Breakeven6.04.82.9
After-Tax IRR13.6%18.9%32.8%
After-Tax NPV$2,210,468$2,995,331$3,898,417
Environmental Offset*
Pounds of coal not burned45,297,59038,502,95241,900,271
Tons of waste recycled, not landfilled13,98311,88612,934
Gallons of gasoline not consumed4,625,8503,931,9734,278,911
Tree seedlings grown for 10 years679,763577,799628,781
*Over 25 years, carbon savings equivalent to one of the above

When deciding whether to pursue distributed generation – whether through solar, combined heat and power, geothermal, biofuel, or others – it is crucial to work with an independent partner not only to understand the options that best fit your needs but also to identify the equipment or service providers that will most effectively implement your desired approach. Just as with competitive supply contracts for electricity and natural gas, the lowest priced option is not always the best, and it is important to understand all the fine print before making a decision. When implementing distributed generation, it is also important to ensure that you have appropriate contracts in place for supplemental electricity service or to enable the sale of excess electricity back to the grid.

We anticipate continued interest in distributed generation, not only for its potential fiscal benefits but also its potential reliability and security benefits and clean energy credentials. Please contact us if you are interested in learning more.

The Avalon Advantage – Visit our website at www.avalonenergy.us, call us at 888-484-8096, or email us at info@avalonenergy.us. 

Please feel free to share this article. If you do, please email or post the web link.  Unauthorized copying, retransmission, or republication is prohibited.

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Trade-offs are Inevitable: Considerations for Our Energy System

By Evelyn Teel

It is easy to think of energy as simply a commodity that makes our lives easier – by fueling our cars, keeping our homes comfortable, and powering our many devices. However, what if we sought to understand the more fundamental role energy plays in our lives? How would this reframe the conversation around the conflicting demands on our energy systems?

These questions and more are at the heart of Kenneth P. Green’s book Abundant Energy: The Fuel of Human Flourishing. In this small but dense tome, he discusses a variety of topics and encourages the reader to think more deeply about his or her own values and priorities regarding energy systems and the policies that govern them.

First, a few caveats. The book is nearly a decade old (published in 2011), so some of its content and assertions are either out of date or have been proven incorrect in the intervening years. The author also largely sidesteps around climate change issues, which have become more prominent in the past decade. However, this does not diminish the value in understanding the overarching points in the book.

Green starts from the premise that external energy sources are so intrinsically linked with human lives that we have, in fact, evolved along with our use of them. The first power source our human ancestors were able to harness – fire – instigated evolutionary changes that shaped the future of our species. Much of what it means to be human, from our cognitive abilities to our physical structure, our digestive system to our hormonal system to our social structures, evolved in concert with our ability to harness fire and, later, more sophisticated forms of energy.

The book focuses on the topics noted below and encourages readers to think critically about what we take for granted in our energy system, how we can improve that system, and what trade-offs we are willing to make to facilitate those improvements.

Energy Affordability

Whereas we often think of our energy costs simply in terms of our utility bills or how much it costs to fill up our gas tank, the reality is that energy costs impact nearly everything we buy and use. There are, of course, direct costs, like electricity or natural gas service at our house or gasoline for the car. There are also indirect costs, which include the energy used to produce all of the goods and services we consume. There is an inverse relationship between income and the percentage of income spent on direct and indirect energy costs – disproportionately so. This means that any increase in energy prices is borne by those least able to absorb the additional costs. This relationship holds true not only within the United States, but also worldwide – poorer nations are more affected by increasing energy costs than are richer ones.

Energy Reliability

Most of the time, we take for granted that when we need electricity, natural gas, propane, gasoline, or other forms or sources of energy, we’ll be able to access them easily. When these systems fail, we are presented with a stark reminder of how essential they are to our lives.

In the case of the 2003 East Coast blackout, millions of Americans and Canadians were left without power for up to two days. Not just electricity was out – communication and transportation systems were inoperable. Other utilities, such as water, were affected. The event cost the economy billions of dollars. The 2003 blackout is an extreme example, but even much shorter blackouts can have negative effects and incur huge costs.

All of this underscores the importance of energy reliability. Consistent availability of power is what enables our society to function. When applying this thinking to fuel sources and how we can ensure energy availability, it is important to understand the capacity factor of various sources – i.e., the percentage of time a particular type of generation operates at full capacity. Some fuel sources can generate full power nearly full time (such as nuclear), while others operate more intermittently (such as solar). For more information about capacity factor, please check out two of our previous blog posts: https://avalonenergy.us/2014/06/capacity-factor/ and https://avalonenergy.us/2014/06/capacity-factor-part-2/.

Energy and the Environment

The majority of the world’s pollution comes from developing nations, and the best way to help curtail their emissions may be to help those countries expand their economies. Green argues that for every environmental resource – energy-related and otherwise – there is an optimal usage level that balances sustainability and economic growth. A society will generally overshoot that level at first, then correct and moderate its usage over time. The key factor in ensuring that a society can moderate its consumption of a given resource is whether it can afford to do so. With economic growth comes the ability to focus on priorities apart from basic survival, as well as the capacity to develop new, more efficient technologies.

Energy System Inertia and Momentum

All systems have momentum. Once a decision is made to proceed in one direction, each progressive step makes it harder and harder to backtrack. This is resonantly true in our energy system. Our electric generation capacity has been built based on certain criteria, and is intended to last for decades. The workforce has been trained within specific parameters. Our society has developed technology, architecture, manufacturing, and much more around the energy system that is currently available. This is not to say that the way we generate, distribute, and use energy must remain static. It does, however, require an understanding of the secondary effects of any changes, and an evaluation of the cumulative costs associated with those changes.

Green also touches on the topics of energy independence and security and the danger of unintended consequences. He highlights the various trade-offs we would need to be willing to make in order to ensure energy independence, such as ramping up fuel extraction in the US and accepting the environmental consequences of increased energy production at home.

Finally, every decision can (and likely will) have unintended consequences. In the realm of energy policy, these unintended consequences can be huge, affecting the lives of millions of people both domestically and abroad. Perhaps the best way to fully understand, evaluate, and resolve these unintended consequences is to test many, varied possible solutions to a given issue. Implementing broad, sweeping solutions without sufficient testing can bring consequences that may do more harm than the original solution was intended to solve.

Conclusion

The environment, climate change, and energy policy are hot topics these days, and it is important to have a general understanding of the different priorities and trade-offs in the energy realm. Which is more important: reducing carbon emissions; keeping energy costs low, particularly for the sake of our less affluent neighbors; ensuring power is available reliably; something else entirely; or a combination of all of these? Identifying (personal) priorities or guidelines for thinking about energy changes can help focus our thinking on individual topics. This book certainly does not cover every aspect of these issues and the many others we need to better understand (nor could any one book do so). However, it is a good starting point to understand several factors regarding energy policy.

The Avalon Advantage – Visit our website at www.avalonenergy.us, call us at 888-484-8096, or email us at info@avalonenergy.us

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For Baseload Energy with No Carbon Emissions, Look (Way) Down

By Evelyn Teel

When discussing renewable energy, the conversation often revolves around wind and solar. These are very visible energy sources – we often see solar panels in our neighborhoods or wind turbines on hilltops. However, there are many other types of renewable energy resources operating or being developed around the world. 

As we try to increase the percentage of renewable energy in the mix, it will be essential to develop technologies that balance each other’s strengths and weaknesses. One of the biggest challenges with wind and solar is their intermittent nature – they will not be able to provide dispatchable power until significant improvements have been made in energy storage technology. 

One energy resource that is available throughout the country on a constant basis is the heat  that exists in the earth’s crust. In some parts of the country, such as Northern California, high temperatures are found fairly close to the surface, and this geothermal source is used to generate electricity. Outside of the United States, Iceland has significant geothermal resources, which are used to heat 90% of their households as well as for many other uses (https://nea.is/geothermal/direct-utilization/). 

Geothermal is actually a very old source of energy for humans. We have used hot springs for warmth and healing for tens of thousands of years. More than a hundred and twenty-five years ago, the first geothermal district heating system was created in Boise, Idaho, where it heated homes and businesses. In 1904, the first geothermal power plant was developed in Tuscany, Italy (https://www.energy.gov/eere/geothermal/history-geothermal-energy-america). Recent and ongoing advances are increasing the range of locations in which geothermal energy can be accessed and used.

The temperature gradient, or rate at which temperature increases as you drill farther into the crust, is not consistent throughout the country. In some areas it is necessary to drill much farther before reaching the temperatures generally required to use geothermal energy to produce electricity. However, innovators are working to hone the techniques and technologies that will allow this renewable resource to be leveraged in more areas. This means developing the capacity to drill farther into the ground, or learning to work with lower temperature geothermal resources. If the geothermal heat is intended to be used for space or water heating, it generally does not need to be at quite as high a temperature as would be required for generating electricity. 

The graphic below, from the paper “Integrating Geothermal Energy Use into Re-building American Infrastructure” by Jeff Tester, Tim Reber, Koenraad Beckers, Maciej Lukawski, Erin Camp, Gloria Andrea Aguirre, Terry Jordan and Frank Horowitz, presented at the World Geothermal Congress 2015 (https://pangea.stanford.edu/ERE/db/WGC/papers/WGC/2015/38000.pdf), shows estimated temperatures throughout the United States at a depth of 5.5km. As you can see, by that depth (just less than 3.5 miles), much of the country is estimated to be at a temperature of at least 125 degrees Celsius, which is sufficient for space heating, water heating, and other purposes.

The logistics of an enhanced geothermal system (or one in which water is pumped into the ground to be heated) entail drilling two wells in parallel, several miles into the ground. Water is pumped into one well; once it reaches the bottom, it is warmed by the surrounding rocks. The heated water is then pumped back up the second well. Depending on the temperature, the water may be so hot that it comes out as steam that can be used to turn a turbine to generate electricity, or it may pass through a heat exchanger so that it warms another fluid that is then used to heat buildings or put to other uses.

At Cornell University, researchers are working to develop an enhanced geothermal system, also called Earth Source Heat, that could heat the campus’s buildings using (relatively) low temperatures such as are available throughout much of the country. Though further research and testing are still required, demonstrating the efficacy of such a system could open the door for further deployment of such systems around the country and the world. For more information on the work happening at Cornell, check out their website: https://earthsourceheat.cornell.edu/

Geothermal energy is often confused with applications involving ground source heat pumps. However, the two are very different. Geothermal energy involves extracting heat from the earth. Some of this heat remains from the original formation of the earth. Some is a result of the radioactive decay over millions of years of elements deep within the earth. Geothermal energy applications are large scale projects that tap into this heat source through wells drilled several miles below the surface of the earth. Ground source heat pumps, on the other hand, are much smaller applications that use the relatively constant temperature of the near subsurface of the earth (10 to 500 feet) as a heat sink for residential and small commercial heating and cooling applications.  

Moving to a renewables-based energy mix will require a variety of resources that complement one another and serve the full range of energy needs throughout the country and the world. Geothermal energy has quite a few positives, including that it can provide baseload power, it generates no carbon and basically no pollution, and the generation sites require a very small footprint. It is a great complement to the more intermittent sources of energy as well as those that are only available in limited geographic areas. This is quite an exciting time, as we witness the resurgence of old energy sources and the development of new ones. 

Interested in learning how you can benefit from today’s low energy prices? Call or email us today and we’d be happy to help you explore your options.

The Avalon Advantage – Visit our website at www.avalonenergy.us, call us at 888-484-8096, or email us at info@avalonenergy.us

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Welcome Back to 1976

By Evelyn Teel and Jim McDonnell

Our last blog post discussed the trend of decreasing natural gas prices in the 2010s (please find that blog post at this link: https://avalonenergy.us/2020/01/down-down-down-energy-prices-in-the-2010s/). What does the trend in natural gas prices look like if we go further back in time?  To answer this question, we extended our look-back to 44 years. 

The graph below shows natural gas prices (monthly average) over the 528 months spanning January 1976 through December 2019. Prices have fluctuated significantly, with particularly big run-ups during the early 2000s. Natural gas prices have been as low as $0.54/mmBtu and as high as $10.79.  Overall, prices have trended upwards. These prices are in “nominal” dollars, meaning dollars of the day, and are not adjusted for inflation.

If we sort the 528 months of price data from lowest to highest, we can see that today’s prices are significantly below both the median and average prices of the full dataset. This means that for the majority of the past 4+ decades, natural gas prices have been higher than they are today.

As indicated, the two graphs above show prices in nominal dollars. When we adjust for inflation, the story changes rather dramatically. The following two graphs show the pricing data in “real” dollars, specifically adjusted into today’s dollars.

Adjusted for inflation, over the 528 months, the low price was $1.87/mmBtu and the high was $13.33/mmBtu. Overall, inflation adjusted prices have trended sideways.  

Looking at the December 2019 monthly average of $2.22/mmBtu, it is very nearly the lowest natural gas price since 1976, adjusted for inflation. More specifically, it was the 8th lowest of all 528 months under review.

The graph below shows nominal and real natural gas prices plotted together. Viewing the data this way highlights the effects of inflation.

It is remarkable to note that, in real dollars, natural gas prices are basically the same as they were 44 years ago – and they are significantly lower today than they have been for most of that period. Plus, not only are prices low today, they are expected to remain low for the foreseeable future. Appending the natural gas forward curve (which represents the market’s view of pricing five years, and even further, into the future) to the historical real dollar price graph shows that prices are expected to remain flat. 

So, when a friend refers to 1976 as a wonderful time of low natural gas prices, trading at around $0.54/mmBtu, tell them, adjusted for inflation, that is $2.50/mmBtu in today’s dollars.  With current prices as of this writing now below $2.00/mmBtu, for natural gas buyers, as Carly Simon sings, “…these are the good old days.” For natural gas producers, not so much.        

The natural gas market has seen some remarkable changes since 1976, driven by technological advances, economic fluctuations, and global political considerations. It is also increasingly sharing the electricity-generation space with a range of competitors, particularly a rapidly-expanding volume of renewables such as wind and solar. It is an exciting time, as the US is generating increasingly clean electricity and building a more sustainable energy system. We can be relatively certain that the energy market in 2064 won’t much resemble the one today, and it will be fascinating to see which factors most drive change in the future.

Interested in learning how you can benefit from today’s low energy prices? Call or email us today and we’d be happy to help you explore your options.

The Avalon Advantage – Visit our website at www.avalonenergy.us, call us at 888-484-8096, or email us at info@avalonenergy.us

Please feel free to share this article.  If you do, please email or post the web link.  Unauthorized copying, retransmission, or republication is prohibited.

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Down, Down, Down: Energy Prices in the 2010s

By Evelyn Teel

A previous blog post highlighted the shale gas revolution as arguably the most significant energy-related development of the previous decade (you can find the post here: https://avalonenergy.us/2019/12/shale-we-review-the-2010s/). In this article, we will discuss another trend that was significant in the 2010s – declining energy prices.

Natural Gas Prices 

One major effect of the shale gas revolution has been that energy prices in the United States have dropped. In particular, natural gas prices have dropped precipitously as new supply has come online. Prices are significantly lower than they were in 2010 generally, and nearing a third of what they were in January 2010 specifically. Please see the graph below, which shows monthly average natural gas prices at the Henry Hub. 

Superimposing a best-fit linear trend line (in red on the graph below) shows just how dramatic the decade-long decline in prices has been. A few peaks and valleys along the way can obscure the overall change, but the trend line shows that prices are approaching half of what they were in 2010. 

The Forward Curve

The above graphs illustrate that natural gas prices are significantly lower today than they were a decade ago. Equally notable is the change in the forward curve over the past decade. The forward curve represents the market’s expectation of natural gas prices from one month to five years, and even longer, into the future. Below is the 60-month forward curve as of July 9, 2010. The trend was upward sloping, meaning that the market expected prices to continue to rise, with prices ranging from $4.58/mmBtu up to $6.61 per mmBtu.

In the graph below, the natural gas forward curve as of January 21, 2020 has been added. The trend line of this 60-month forward curve is very nearly flat. This means the market expects prices to stay fairly level with prices fluctuating very modestly, between $1.89 per mmBtu and $2.81 per mmBtu.

Electricity Prices

Though less significantly than natural gas prices, electricity prices have likewise fallen. The graph below shows average annual day-ahead electricity prices in PJM. Though there were a few price jumps along the way, the trend over the past decade was that prices declined. Compared to prices in 2010, prices in 2019 were down approximately $20 per MWh.

Historically, natural gas has often been the marginal generation source called upon to produce electricity, meaning that natural gas generation often sets the price for electricity.  While the relationship between natural gas and electricity prices changes over time, the correlation has generally been strong. Also note, that though electricity prices in the wholesale market have fallen, utility distribution charges have been on the rise, and this has generally offset reductions in the cost of electricity generation on customers’ bills. For more information on the evolving relationship between natural gas and electricity prices, please see several of our previous blog posts:

Natural Gas and Electricity Are Parting Ways – Part 1

Natural Gas and Electricity Are Parting Ways – Part 2

Separate Paths – Part 1

Separate Paths – Part 2

Conclusion

With shale gas production projected to increase for the foreseeable future; the US expected to continue expanding as an exporter of liquified natural gas (LNG); greater emphasis on economic discipline (profitability over singular focus on reserve additions) by E&P companies; and the electricity fuel mix continuing to change based on both economics and technical advances that allow increasing renewables into the mix, it will be interesting to see how energy prices respond in the coming decade.

Interested in locking in today’s low energy prices? Please call or email us to discuss your options.

The Avalon Advantage – Visit our website at www.avalonenergy.us, call us at 888-484-8096, or email us at info@avalonenergy.us.

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In the News: Jeff Dowdell Talks CHP, Natural Gas, and More

By Evelyn Teel

Avalon Energy Services Senior Energy Consultant Jeff Dowdell was the featured guest on the most recent Energy Sense Podcast. Check out the episode to learn about combined heat and power (CHP) – what it is, how it can reduce costs and improve efficiency, and how it improves resilience. Jeff also discusses the future of natural gas as the US moves towards a more renewables-focused fuel mix, as well as considerations for deciding to work with an energy consultant. Interested in a career in the energy industry? Jeff has advice for you, too.

The 23:45 podcast can be found at the following link: https://energy-sense-podcast.simplecast.com/episodes/energy-generation-the-efficiencies-of-combining-heat-and-power-and-how-to-hire-an-energy-consultant

The Avalon Advantage – Visit our website at www.avalonenergy.us, call us at 888-484-8096, or email us at info@avalonenergy.us.

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Shale We Review the 2010s?

By Evelyn Teel and Jim McDonnell

With the decade coming to a close, this is a perfect opportunity to look back at how the energy market has changed over the past ten years. It has certainly been a whirlwind ride, starting shortly after the 2008 stock market crash and continuing through the Great Recession and the subsequent recovery. The decade also saw the shale gas revolution take hold. Arguably the most significant change in the energy market over the past ten years, the shale gas revolution has not only provided great economic benefit within the United States but also reshaped our position on the world stage.

The two technologies instrumental to the shale gas revolution – hydraulic fracturing (i.e., fracking, or inducing porosity and permeability in rock) and directional drilling (greatly increasing a wellbore’s exposure to hydrocarbon bearing formations) – have been around for decades. However, Texan George P. Mitchell of Mitchell Energy & Development Corp., through sheer determination and personal will over seventeen years, was able to advance and combine these technologies, thus enabling the extraction of natural gas from shale formations that are of low porosity (i.e., not much pore space in the rock) and low permeability (i.e., the pore spaces are not well interconnected). These formations underlie large swaths of the United States, and the proven reserves of natural gas have consistently increased over the past decade.

The shale gas revolution is commonly considered to have started in 2008, and in the 2010s, we have witnessed the remarkable changes that have resulted from its growth. As fracked wells have come online, the ready supply of low-cost natural gas has transformed the energy industry in America and the world. The graph below on the left shows the volume of natural gas produced daily in the United States between 1997 and 2010, measured in billions of cubic feet per day (Bcf/day). Production over this period remained relatively flat, averaging about 50 Bcf/day. Compare that to the graph on the right, which shows the volume of natural gas produced in the United States from 2010 to the present. The volume of natural gas produced daily has very nearly doubled to about 93 Bcf/day.

Though demand for natural gas has increased, the more dramatically increasing supply of natural gas has driven down its price. The graph below shows how US natural gas prices at the Henry Hub have declined from about $6 per million Btu (mmBtu) to $2.19 per mmBtu today.  

Due to the increased availability of cheap, abundant natural gas, an increasing number of liquified natural gas (LNG) export terminals have come online, and the United States has become a major exporter of LNG. This reverses a long-term trend of rising LNG imports. The graphs below show US LNG imports and exports from 1985 – 2009 (left) and 2010 – 2019 (right).

In most parts of the country, natural gas prices and electricity prices are strongly correlated. As natural gas prices move so do, generally, electricity prices. Thus, as natural gas prices have fallen, electricity prices have fallen as well. The graph below shows wholesale electricity prices in the Mid-Atlantic measured in dollars per megawatt-hour ($/MWH). Wholesale electricity prices are almost half of what they were ten years ago.   

The abundance of natural gas and the declining prices of natural gas and electricity have been driven by the dramatic increase in shale gas production.  

The map and graph below identify the regions and geological “plays” in the US where shale gas production is occurring. Shale gas production has increased to two-thirds of this rising total US natural gas production from only a minor contribution only ten years ago.    

Source: US DOE EIA

Though many people doubted fracking would work with crude oil deposits, as oil molecules are much larger than those of natural gas, Mark Papa of EOG Resources, Harold Hamm of Continental Resources, and others have been able to adapt fracking technology to the extraction of oil. We have thus seen a shale oil revolution take hold, which has brought benefits similar to those of the shale gas revolution. It has driven down petroleum prices in the United States and dramatically reduced our dependence on foreign oil.  The US recently became a net exporter of oil products (refined petroleum and crude oil). Overall, the US is now the world’s largest producer of natural gas (93 Bcf per day versus 58 Bcf per day during 2010) and crude oil (13 million barrels per day versus 5.5 million barrels per day during 2010). 

The shale revolutions have significantly changed the US energy landscape over the past decade. They have brought online abundant sources of low-cost domestic energy, which have driven down consumer prices, boosted our economy, created jobs, improved America’s energy security, and increased revenue to state and local governments and the federal government. Fracking and directional drilling require a smaller footprint than traditional drilling, and have helped reduce CO2 emissions as natural gas is being substituted for coal in electricity generation. Low cost, abundant natural gas complements intermittent sources of energy such as wind and solar.

In addition to all the benefits noted above, low energy prices in the United States have expanded the manufacturing sector and made the country more attractive to companies willing to relocate from overseas. Indeed, the shale revolutions have done nothing less than improve the United States’ geopolitical position, reducing our dependence on foreign oil and shoring up our export capacity.

Like any fuel source, shale gas comes with trade-offs. There are concerns about induced seismicity, water and air pollution, and health impacts. Further technological advances and refinements in the field may alleviate these concerns, and we look forward to seeing how this industry progresses in the 2020s.

The Avalon Advantage – Visit our website at www.avalonenergy.us, call us at 888-484-8096, or email us at info@avalonenergy.us.

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Wind Power, Transmission Lines, and a Vision for a Better Electric Grid

By Evelyn Teel

Wind energy is an incredible resource with incredible potential. The generation costs are low, the efficiency of turbines continues to increase, and the threat to birds continues to decline. An unfortunate irony, however, is that the places with the most prolific wind energy tend to be places with relatively little demand for power.

West Texas, the Dakotas, Kansas, the Oklahoma panhandle – these are all places where the wind blows powerfully and fairly consistently. However, getting electricity generated by that wind to the population centers that most need it is challenging in the current environment. The decentralized nature of the US power grid means that moving electricity across state lines and between regions is difficult, and sometimes seemingly impossible. 

A wind farm

Several people have envisioned networks of high-voltage transmission lines that could move power from areas of abundant wind energy (as well as solar energy) to areas that could use that power. Russell Gold’s book Superpower centers on one of those people.

Michael Skelly conceptualized a series of high-voltage, direct current transmission lines radiating out from the center of the United States to points east and west. Little did he realize, however, quite how complicated it would be to implement that vision. With differing economic, political, regulatory, and cultural realities in different states, overlain by the interests and powers of the federal government, Michael Skelly’s company, Clean Line Energy Partners, would require agreement from myriad stakeholders in order to make their project a reality.

High-voltage transmission lines and supporting tower

Though Superpower focuses primarily on Michael Skelly – including earlier ventures that prepared him for the task at hand – the author incorporates a wealth of information about the history of the electric grid and the energy field. He provides fascinating background about major developments that have led to the system we have in place today, from the first factory with generator-powered electric lights to the first centralized power plants to the first “experiment” in which wind energy was fed back into the electric grid. He also illustrates the massive declines in the cost to generate wind energy, along with the growth in the size of wind farms.

The electric grid has evolved over time such that electricity is generated and used within the same general area – first, within the same building; then, the same city; and now, the same region. In order for renewable energy to provide a sizeable percentage of our electricity needs, the next step in that evolution will need to be transmission lines that allow electricity to be moved across regions. The book’s extensive discussions of the various players in this drama – utility companies, public service commissions, elected officials, landowners, federal agencies – and their interests and motivations bring clarity to the challenges facing anyone attempting to modernize the grid. It is also fascinating to learn how differently various states approach the energy industry, and how state and federal powers intersect.

Russell Gold is clearly very sympathetic to Michael Skelly and comes across at times as more cheerleader than reporter. However, looking beyond the fanfare, the reader can gain a strong understanding of the challenges facing the US as we seek to incorporate more renewable energy, update the electric grid, and increase the resilience of our power supply.

The Avalon Advantage – Visit our website at www.avalonenergy.us, call us at 888-484-8096, or email us at info@avalonenergy.us.

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Maryland Renewable Energy Portfolio Standard – A Lot of Change for No Action

During this year’s legislative session, the Maryland General Assembly passed the Maryland Clean Energy Jobs Act.  Maryland’s governor, Larry Hogan, then had until 30 days after the legislative session (i.e., until May 30) to sign the bill, veto the bill, or take no action.  By taking no action, the bill would automatically become law.  The governor took no action and the bill is now law. 

RPS

The new law increases Maryland’s renewable energy portfolio standard (RPS) from 25% by 2020 to 50% by 2030.  This is shown graphically below, along with Maryland’s original 2004 and 2017 RPS goals (also see Maryland RPS – Veto Override):

Solar Carve Out

The law also increases the “solar carve out” from 2.5% by 2020 to 14.5% by 2028.  This is a dramatic increase and is shown graphically below: 

The following table shows the Maryland solar carve out as a percentage of the total Maryland RPS, increasing from 10% in 2019 to about 30% in 2027 and beyond.

SRECs

Prior to the bill being passed by the Maryland legislature, Maryland renewable energy credits (SRECs) were trading at about $16 per megawatt-hour.  Upon passage of the bill, Maryland SRECs increased to about $47 per megawatt-hour.  With the bill now becoming law, Maryland SRECs have increased in value to $63 per megawatt-hour. 

Economic Value

A 45 megawatt solar project with a 15% capacity factor would generate 59,130 megawatt-hours per year:

45 megawatts x 15% CF x 8,760 hours per year = 59,130 megawatt-hours

Prior to the bill being passed by the Maryland legislature, 59,130 megawatt-hours of Maryland SRECs were worth $946,080 annually.  With the passage of the bill, this value increased to $2,779,110.  With the bill now law, the value has increased to $3,725,190.  Please note that this ignores transaction costs.

Thought of in units generally used in utility billing, these SREC values equate to an increase from 1.6 cents per kilowatt-hour to 6.3 cents per kilowatt-hour. 

This represents value to the owner of the SRECs in addition to the value received for the energy production from the solar facility. 

If the energy output of the solar project in this example is sold for 6 cents per kilowatt-hour, SRECs now add another 6.3 cents, for a total of 12.3 cents per kilowatt-hour.   

That’s a lot of change for no action. 

Note:  This Maryland legislation includes a grandfathering provision, meaning that customers who sign up for or extend their supply contracts before the grandfathering period ends are grandfathered from the additional RPS costs until the expiration of the grandfathered contracts.  This is a good time to consider extending your electricity supply contracts.  Contact us for more details.

Evelyn Teel contributed to this article.

The Avalon Advantage – Visit our website at www.avalonenergy.us, call us at 888-484-8096, or email us at info@avalonenergy.us.

Please feel free to share this article.  If you do, please email or post the web link.  Unauthorized copying, retransmission, or republication is prohibited.

Copyright 2019 by Avalon Energy® Services LLC