2016 Saw Largest Increase in Generating Capacity Since 2011: What to Know About Energy Prices This Week

What You Need to Know About Energy Prices This Week

Although about 12 GW of generation retired in 2016, the addition of over 27 GWs resulted in a net increase of about 15 GW, the largest such increase since 2011, according to a recent report released by the US Energy Information Administration (EIA).

The increase follows a three-year span in which the total change in generating capacity was actually a decrease of 1 GW. While the retirements from the coal sector are perhaps unsurprising, the additions in sectors other than natural gas and wind are certainly noteworthy. In 2016, 7.7 GWs of utility-scale solar projects were added, more than ever before. Also, even though nuclear generation overall saw a net decrease of 4 GW this past year, the addition of 1 GW of nuclear capacity at Watts Bar Unit 2 marked the first new nuclear unit coming online since 1996.

Despite the increases in generation and fuel diversity, consumers should not expect major positive impacts on pricing in the near term. Power markets are still regionalized, and while national trends are important to follow, local supply and demand balances play a much larger role in the wholesale cost of power at the facility level.

A Brief Primer on Energy Markets

Every week, EnerNOC’s energy intelligence team analyzes the market developments driving energy prices. In this weekly article, you’ll see a lot of discussion about energy generation sources, such as natural gas, coal, nuclear, and some renewable and distributed energy resources. You’ll also see a lot of talk about the factors affecting generation: weather, production, storage levels, natural disasters, geopolitical events, and so on.

The connections between the drivers and the energy markets are complex, but here’s what you should know in a nutshell. Weather is a key driver because it has a direct impact on demand for electricity and natural gas. Temperature extremes cause spikes in demand for natural gas, either directly for home heat or indirectly as a fuel source to generate electricity for air conditioning. Similarly, unexpected natural disasters or geopolitical events could suddenly affect supply, which has a similar downstream effect on pricing. And, of course, any change in pricing is going to affect your organization’s energy costs. Keeping up with new developments in the market is important to ensuring you don’t miss opportunities that could save significant money for your business over the long term.

If this is all still a little confusing, talk to an energy procurement expert to learn why the factors affecting energy markets actually matter to your business. Or check out our other content to learn more about what drives energy prices and how you can turn temporary low-price opportunities into long-term savings.

Want tailored advice on how to buy energy more strategically? Speak with a procurement expert now.
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What's Driving the Market Up?

In the short term:

  • Natural gas in storage falls well below year-ago levels

  • Exports to Mexico at record high

  • Growing liquefied natural gas exports

  • Production is still under 71 Bcf/day

In the long term:

  • The EIA projects that 2017 natural gas prices could average $4/MMBtu

  • According to the EIA, US is on its way to becoming a net energy exporter

  • EIA projects a 4% year-over-year growth in gas used to generate power

  • Winter 2016/17 forecasts call for higher precipitation for the Northeast and cooler Midwest

  • Liquefied natural gas exports have begun and are expected to grow in 2017. They are expected to average 1.8 Bcf/d, up from about 0.6 Bcf/d in 2016.

  • PJM board approved $636 million in Transmission Investments

  • PJM’s board of directors has approved higher tariff rates through 2024 to help cover operating and administrative costs

  • Expected 21 GW of generating capacity to retire by 2020

What's Driving the Market Down?

In the short term:

  • Forecast maps from the National Weather Service point to milder weather in the medium term

  • Entering the final stretch of the traditional winter season

  • The EIA suggests that the pace of recovery in shale production of natural gas and crude oil will further increase in March

In the long term:

  • FERC has approved the construction of capacity enhancement for the Rockies Express Pipeline

  • Pipeline flows from the Algonquin Gas Transmission’s Incremental Market project started on November 1

  • The US electric grid is expected to add almost 55 GW of generating capacity, most of which will be wind, solar, and natural gas

  • 28,607 MW of natural gas capacity is expected to come online between 2015 and 2017

  • Strong growth from shale gas is expected to continue

  • Nuclear industry targets 30% cost reduction by 2018 in order to increase competitiveness in the market

Learn more about how the energy markets could change in 2017 with our full report
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How Are Natural Gas Prices Trending?

This chart shows how month-ahead prices for natural gas are settling on the New York Mercantile Exchange. It is a good indicator of where the market is, relative to where it has been over the past four years.

What Do Forward Natural Gas Markets Look Like?

Henry Hub

Henry Hub represents a main distribution center for natural gas. Activity at the Henry Hub is considered a benchmark for natural gas prices in markets across the country, including the NYMEX and OTC Global Holdings. This chart shows how Henry Hub forward prices for natural gas have trended over the past calendar year.

1 Year Trend of Power Around-the-Clock Calendar Year Prices

Prices for power are constantly fluctuating, and it can be difficult to know exactly when they are going to spike or plummet. These charts show how future power prices have trended over the past calendar year for New England (ISO-NE), the mid-Atlantic region (PJM), New York City (NYISO Zone J), and Northern Illinois.

1 Year Trend of Natural Gas Calendar Year Prices

While the Henry Hub provides the benchmark, prices tend to vary based on regional factors. These charts show how forward prices are trending over the previous calendar year at the hubs for New England (Algonquin), New York (both Transco Z6 NonNY and Transco Z6 NY) and Chicago (Chicago City Gate).

Weather Forecast

Extreme swings in weather can significantly impact energy prices. These maps depict forecasts courtesy of the National Oceanic and Atmospheric Administration. Blue shading indicates areas with a high probability of seeing below-average temperatures, and red shading shows areas that are likely to see above-average (white areas are most likely to see average temperatures for their climate). The darker the shade of either color, the higher the probability that the corresponding area will see abnormal weather.

For questions about this week's article, contact EnerNOC Energy Analyst Ricky Ghoshroy.

Learn more about how the energy markets could change in 2017 with our full report
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Authored By The EnerNOC Energy Intelligence Team

The Energy Intelligence team provides talent and knowledge to our customers by making the complexity of energy management simple.

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