Two Ohio Coal Plants Set to Close: What to Know About Energy Prices This Week
What You Need to Know About Energy Prices This Week
Ohio utility Dayton Power & Light (DP&L) recently announced it will close two large coal-fired generation facilities—the J.M. Stuart and Killen plants located in Southern Ohio—by June of 2018. According to DP&L, current market conditions are making it impossible for either plant to be profitable beyond 2018. Low power prices driven predominantly by cheap natural gas are creating significant problems for large baseload generation with significant fixed costs.
Although the Trump administration will aim to remove many of the environmental restrictions that are further complicating matters for coal facilities, given the current state of technology it seems unlikely that project developers will pursue any new coal-fired generation. Even in regulated markets, state initiatives are moving the generation landscape further from coal. For example, NV Energy recently closed the doors to a 257 MW coal plant as part of a state mandate to reduce power production from coal by nearly 800 MW.
Although increases in availability of coal may boost its share of generation in the near-term, with much of the nation’s coal fleet aging and few plans to replace or upgrade plants, natural gas seems poised to continue to dominate the US energy scene.
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.
What's Driving the Market Up?
In the short term:
- Natural gas pipeline deliveries to the Sabine Pass liquefaction terminal are increasing
- Exports to Mexico at record high
- Increase in gas consumption driven by heating demand
In the long term:
- The US Energy Information Administration (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 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 to average of 1.8 Bcf/d in 2017, up from about 0.6 Bcf/d in 2016
- PJM board approved $636 million in Transmission Investments
- PJM’s board of directors have approved higher tariff rates through 2024 to help cover operating and administrative costs
- 21 GW of generating capacity expected to retire by 2020
What's Driving the Market Down?
In the short term:
- Storage levels exceed five-year average
- Entering the final stretch of the traditional winter season
- Drilling Productivity Report forecasts a rise in production from six out of seven major shale regions
In the long term:
- Rover Pipeline and Atlantic Sunrise Project win FERC approval
- 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
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 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).
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.