New Age Energy Markets - Challenges for Utilities , IPPs and Traders
A ComTechAdvisory Whitepaper
NATURAL GAS IN THE NEW AGE OF ENERGY
Though renewables share of the generation mix is increasing , natural gas continues to be the marginal source of power in most markets . Given that wind and solar have a limited operating window on any given day , gas-fired generation provides the most flexible source of on-demand power , particularly turbine driven generators which can be brought on-line on very short notice . Given that flexibility , gas-fired generation now sets the marginal price in most markets in the US , creating an ever-tightening linkage and correlation between power and natural gas prices . Though that correlation may vary across markets depending on the mix of assets , the ongoing switch from coal to natural gas has reduced wholesale power prices and volatility to a large degree in all markets . In 2015 , wholesale power prices in the US were down 27-35 % compared to 2014 as natural gas prices fell throughout the year .
The Northeast US , in particular , has seen significant switching from coal to natural gas given the vast resources opened in the last 5 years in the Marcellus and Utica shales , whose combined production has increased from less than 5 bcf / day to almost 20 bcf / day . Given this significant and cheap fuel source , non-gas generation retirements have accelerated ( such as the coal-fired Salem Harbor plant and the Vermont Yankee nuclear facility in New England ) and the region has seen development of number of new , but relatively smaller power plants that are being constructed across the area . However , given difficulties in developing new power transmission lines and pipelines in that region due to political , environmental and landowner objections , these new generation facilities continue to encounter recurring periods of transmission and pipeline congestion that have plagued the area for decades .
The Southeast region has also been impacted by the increased gas production from the Marcellus and Utica , as gas from the mid-continent and Gulf Coast that once supplied the New England markets is left stranded in the south . Over the past 3 years , the Southeast added approximately 6.5 GW of gas-fired generating capacity and total natural gas demand in the region during 2015 increased 5.2 percent over 2014 levels . The EIA estimates that an additional 17 GW of gas-fired capacity will be added in the Southeast over the next 3 years .
Given the increasing reliance on natural gas for the US power supply , the Federal Energy Regulatory Commission ( FERC ) has been taking action to better coordinate the operations of the two markets , most recently ( as of April 1 ) realigning pipeline nomination deadlines to better match day-ahead generation scheduling and adding an additional nomination cycle during the day . Most market observers feel this will be but the first step and the FERC will continue to make additional rule changes in order to ensure system stability as gas ’ role in the power mix continues to grow .
TRANSMISSION REMAINS AN ISSUE
While the ongoing construction of smaller but more numerous gas generators closer to load centers does promise to relieve some the transmission congestion issues that have plagued many areas of the country , the simultaneous influx of renewables , particularly wind is creating additional transmission congestion issues in others . Given that wind generation is generally sited in remote , less populated areas , existing transmission lines are generally inadequate to handle loads during periods of peak production . Despite recent investments in new and upgraded lines , some of these market regions , such as ERCOT and SPP , continue to experience significant trans-
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