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In the News: Jim McDonnell Talks Energy Markets and Covid-19

By Evelyn Teel

Our Chief Operating Officer, Jim McDonnell, was the lead-off speaker for the first session of the Maryland Clean Energy Center’s Energy Economy Speaker Series. The topic was State of the Sector: Impacts of Covid-19 on the Energy Economy. Jim provided a broad energy market update and then focused on the differential impact of the pandemic on energy usage in various industry sectors. The recording can be found at the following link:   

https://www.youtube.com/watch?v=WUDbbjNvnQc&feature=youtu.be

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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Copyright 2020 by Avalon Energy® Services LLC

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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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All images copyright 2020 Avalon Energy® Services LLC

Copyright 2020 by Avalon Energy® Services LLC

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New England Electricity Rates: Quite a Difference

By Jim McDonnell and Evelyn Teel, Avalon Energy Services, LLC

Compared to the rest of the United States, electricity prices in New England are high.  Nothing surprising there.  So, just how expensive are they?  Well, it depends.  And, the surprising part is which utility, in one comparison, has the lowest rates.

First, some background.

Eversource Energy is an investor-owned utility headquartered in Hartford, CT and Boston, MA.  Eversource is the rebranded name of Northeast Utilities, after its merger with NSTAR in 2012.  Through its three electric distribution companies, Eversource operates New England’s largest energy delivery system and has 3.2 million electricity customers.          

United Illuminating Company, a subsidiary of Avangrid, Inc., is an electric distribution company serving 325,000 customers in Connecticut.  Avangrid, through its four electric utility subsidiaries, serves about 2.2 million customers in New England and New York State.     

Wallingford, Connecticut is a town of 45,000 people located between Hartford and New Haven.  Despite its size, the town operates its own municipal electric utility, known as the Wallingford Electric Division (WED). 

Despite operating in the same geographic area, the three utilities vary dramatically in terms of their rates and the costs to their consumers.

A recent bill insert sent out by WED provided the following rate comparison.  These are residential rates for an account that averages 750 kWh per month.  

Utilities have different energy procurement strategies and different infrastructure issues, which contribute to their varied pricing. Furthermore, municipal electric utilities are exempt from certain mandates that affect the pricing of larger utilities.  However, the 6.2 and 11.5 cents per kWh differences between a small municipal utility and the two large investor-owned utilities are dramatic. 

Note:  The WED bill insert was provided by Dan McDonnell of Wallingford, CT.

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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Copyright 2019 by Avalon Energy® Services LLC

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Balancing Congestion

The Federal Energy Regulatory Commission approved a change in PJM’s (the Mid-Atlantic grid operator) tariff, allowing them to shift what are called “balancing congestion” costs to load serving entities.  FERC approved PJM’s tariff revision with an effective date of June 1.  Suppliers have indicated that they intend to pass through these charges.  Suppliers include a change of law or regulation provision in their agreements.  Basically, they commit to a fixed price, but allow for pass-throughs when there is a change in law or regulation.  Please email or call to discuss the potential impact of these charges to you.

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

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Copyright 2017 by Avalon Energy® Services LLC

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What Does an Extended Cold Spell Look Like?

This is a follow up to our blog posted Monday evening titled “What Does a Cold Day Look Like?” and looks at the impact on real-time wholesale electricity pricing of extended cold weather.

We reported that as a result of Winter Storm Hercules barreling through the Mid-West, Mid-Atlantic and Northeast last Thursday and Friday (January 3 and 4), real-time wholesale electricity prices in the  PJM territory were elevated and volatile, ranging from negative prices to $739.70 per megawatt-hour ($/MWh) or $0.74 per kilowatt-hour (kWh).  For comparison, we noted that real-time wholesale prices in PJM averaged $31.21/MWh or $0.0321/kWh during 2012.  We also noted that during times of extremely cold weather, consumers pull out all of the stops.  Air circulation equipment runs longer and electric resistance heating kicks in.  The result is increased usage and high prices.

Moving ahead to Monday and Tuesday, January 6 and 7, the weather remained bitterly cold and the Polar Vortex moved further south.

The difference during this later two day period was that thermal mass (such as building foundations and walls, and the ground itself) had largely dissipated any retained heat.  The result was an increase in the amount of energy required to heat buildings and homes.

From 7:50 PM to 8:25 PM on Monday, January 6, real-time wholesale electricity prices exceeded $1,000/MWh across the entire PJM grid.  As an indication of how far south the cold spell reached, the peak price for the day of $1,238.77, which occurred at 8:10 PM, was in the East Kentucky Power Coop Zone.

Below are PJM real-time prices and system load during the 24 hours of Monday, January 6.

On Tuesday, January 7, real-time wholesale prices exceeded $1,000/MWH from 6:40 AM to 11:55 AM and then again from 5:30 PM to 5:55 PM.  Prices peaked in PJM at 7:15 AM at $2,450.54/MWh.  This occurred in the Dominion Zone.

Below are PJM real-time prices and total system load during the 24 hours of Tuesday, January 7.  Peak system load was reduced significantly by voltage reductions, voluntary customer conservation, and the implementation of demand response.  PJM reported 38,000 MW of generation outages.  Additional electricity supply was imported from two other RTOs – NYISO and MISO.

The table to the left below summarizes the PJM peak real-time wholesale electricity prices over the past four weekdays and shows the 2012 PJM total system average for comparison.  The table to the right shows the PJM total system peak demand which, at 141,483 MW on Tuesday, 1/7/14, represents a new PJM winter record.  The previous winter peak, which was about 5,000 MW lower, was set on 1/5/07.  The all-time system summer peak of 158,450 MW occurred during the summer of 2011.

For more on how electricity prices in the PJM Interconnection area can be affected by weather and other events (i.e., an earthquake), please see:

What Does a Superstorm (Sandy) Look Like?

What Does a Derecho Look Like?

What Does a Warm Day Look Like?

What Does an Earthquake Look Like?

Post Script – A reader in Connecticut sent us the following image indicating that it is also what an extended cold spell looks like:

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

Note:  Data and graphs from PJM.com

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Copyright 2014 by Avalon Energy® Services LLC 

 

 

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What Does a Cold Day Look Like?

In previous blog posts, we have examined how weather and other events affect electricity prices.

What Does a Superstorm (Sandy) Look Like?

What Does a Derecho Look Like? 

What Does a Warm Day Look Like?

What Does an Earthquake Look Like?

We continue this series by looking at how electricity prices in the PJM Interconnection area can be affected by cold weather.

Winter Storm Hercules brought snow and cold temperatures to the northeast United States on Thursday and Friday, January 2 and 3, 2014.

Because of heavy cooling loads, electricity usage and wholesale electricity prices in the PJM area during the summer tend to be substantially higher than usage and wholesale prices during the winter.  Most air conditioners are powered by electricity whereas much of the winter heating load is carried by natural gas and, to some extent, fuel oil.  However, during times of extremely cold weather, consumers pull out all of the stops.  Air circulation equipment runs longer and electric resistance heating kicks in.  The result is increased usage and high prices.

The map below shows real-time wholesale electricity prices at 5:40 PM on January 2.  As is typical, electricity prices are higher in the eastern part of PJM (PJM-East), where most of the load is located, than in the western part of PJM (PJM-West), where most of the generation is concentrated.  Real-time prices differences in PJM are a result of the costs associated with transmitting electricity from generating facilities (source) to load (sink) and the related line losses.  On the map, the price scale in the bottom left corner of the map is in dollars per megawatt-hour ($/MWh).

The east-west differentiation in prices is dramatic.  The table below shows prices in dollars per megawatt-hour ($/MWh) and dollars per kilowatt-hour ($/kWh) for six delivery zones.  For comparison, real-time wholesale prices in PJM averaged $31.21/MWh or $0.03/kWh during 2012.

Summer electricity prices also tend to be substantially more volatile than winter prices.  But, extreme weather, hot or cold, can drive price volatility and at times, winter prices can exhibit strong volatility.  Below is a dramatic example.  While prices in North Jersey (PSEG Zone) were high, around $500/MWh, prices in West Virginia and western Virginia were negative.

This was a result of transmission constraints brought about by the heavy demand in PJM-East and the inability of many coal fired generating plants in PJM-West to ramp down quickly.  In other words, while there was great demand for electricity in PJM-East, there was temporarily insufficient transmission capacity to move electricity from west to east.  These transmission constraints developed more quickly than generation in PJM-West was able or willing to curtail their output.  The result was that, rather than receive revenues for their output, generators had to pay to deliver their energy into the system.

After a continued day of volatile prices, by 11:35 PM electricity prices had moderated significantly over the entire grid.  As shown on the graph below, prices had fallen to the $20/MWh to $40/MWh range.

However, Friday, January 3 brought more cold temperatures…

…and more volatility.  At 2:05 AM on Friday, January 3, less than three hours after the snapshot above, prices spiked, exceeding $700/MWh in northern New Jersey.

During the remainder of Friday, prices continued to exhibit a strong East-West differentiation…

…but showed some periods of quiescence:

…as well as across the board extremely high prices:

The graph below shows real-time prices throughout the entire day:

This graph shows PJM total system wide load over the day.  Peak demand was 128,611 MW.

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

Note:  Electricity price data and graphs from PJM.com.

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 2014 by Avalon Energy® Services LLC