Retirements to Boost Prices $3 – $11/MWh
RTO Insider | December 12, 2013
Coal plant retirements will boost PJM on-peak energy prices by $3 to $4/MWh — and as much as $11/MWh if gas prices increase — according to a study released last week by The Brattle Group.
The analysis — which evaluates the “feedback” effects from coal plant retirements, retrofits and increased gas demand on capacity and energy prices — is a case study of PJM’s Mid-Atlantic (MAAC) region.
Brattle said the retirement of 2.8 GW of coal capacity in MAAC, 15% of the region’s total, would increase on-peak prices $3-4/MWh by 2015, assuming delivered gas prices of $5-6/MMBtu. The impact would decline to about $1/MWh by 2025 as new gas-fired plants increase supply. Off-peak prices would increase by $1-2/MWh under the same scenario.
If all of the replacement capacity came from combined cycle units and combustion turbines, however, the increased fuel demand would boost gas prices by 5% to 10%. As a result, on-peak prices could jump more than $10/MWh by 2015, declining to $6/MWh by 2025. Off-peak prices would increase about $5/MWh throughout.
The analysis compared projected prices with futures prices for the PJM-West hub as of summer 2012. It noted that PJM West prices in October 2013 were about $5/MWh lower than the 2012 baseline.
The increase in margins — with a present value of $100-300/kW — “are not likely to be large or persistent enough to alter the extent of overall plant retirements,” Brattle said but could be enough to reverse some retirement decisions.
Capacity Price Impact
Feedback Loops between Coal Plant Retirements and Markets Capacity prices will rise in the short-term as reserves drop but drop long-term as increased energy prices reduce the net Cost of New Construction Entry (net CONE). “This effect decreases the long-run equilibrium price of capacity until the energy price impacts of retirements disappear,” the study said.
While numerous studies have projected the volume of coal capacity likely to retire and undergo retrofits, Brattle said few studies have evaluated the impact of these changes on energy and capacity prices and the feedback effects on plant economics. (A 2011 MISO study estimated an increase of up $4.80/MWh in its region due to environmental regulations. Exelon predicted in 2011 that the regulations could increase PJM prices by $12/MWh.)
The size of the price increases will depend on the amount and timing of plant retirements, the spread between coal and gas prices and the mix of peaking, intermediate and baseload generators that enter the market. The study did not evaluate the impact of retirements on renewable generation or new transmission projects, which in turn would also influence power prices.
Brattle also cautioned that its results did not take into account other potential changes in the market. “For instance, it is possible that a material portion of the nuclear fleet in the U.S. will shut down if gas prices and resulting wholesale power prices continue to be low. And gas usage itself could increase sufficiently that it begins to dampen its own attractiveness.”
The study included a sensitivity analysis to determine the impact if natural gas prices remain at current levels of $3-4/MMBtu. Under this “Low Gas” scenario, coal retirements had almost no impact except for near-term on-peak prices. “This is not surprising because the coal plants that would potentially retire are the less efficient ones and they would not run a lot under such low gas prices if remained in-service. Thus, the marginal units that set the market prices would stay the same whether or not the coal plants retire.”
U.S. Installs 930 MW of Solar Photovoltaic Capacity in Third Quarter
Power Engineering | December 12, 2013
The U.S. installed 930 MW of solar photovoltaic capacity in the third quarter of 2013, which marks the second largest quarter of the U.S. solar market in history, according to the Solar Energy Industries Association.
The SEIA stated in its U.S. Solar Market Insight: 3rd Quarter 2013 that solar installations were up 20 percent from the second quarter this year and 35 percent from the third quarter of 2012. It was also the largest quarter ever for residential photovoltaic installations, with 186 MW of new capacity installed in the residential market.
The report also states the SEIA projects the U.S. will install a total of 4.3 GW of new photovoltaic in 2013, a 27 percent increase over 2012. That would make 2013 the first year in more than a decade in which the U.S. installs more solar capacity than Germany, which is currently the world leader in solar capacity.
Natural Gas and Oil Market Update
Natural Gas Prices up More than 1% After EIA Data
MarketWatch | December 12, 2013
Natural-gas futures on Thursday added to gains then pared them after the U.S. Energy Information Administration reported that supplies of natural gas fell 81 billion cubic feet for the week ended Dec. 6. The fall was generally within market expectations as analysts surveyed by Platts forecast a drop of between 79 billion cubic feet and 83 billion cubic feet. Total stocks now stand at 3.533 trillion cubic feet, down 273 billion cubic feet from a year ago and 109 billion cubic feet below the five-year average, the government said. January natural gas was at $4.39 per million British thermal units, up 5 cents, or 1.2%. It was trading around $4.38 before the data, then climbed to as high as $4.41 and as low as $4.35 after them.
WTI Crude Rises as Higher Retail Sales Bolster Economic Optimism
Bloomberg | December 12, 2013
West Texas Intermediate crude advanced after U.S. retail sales climbed, bolstering the outlook for the economy of the world’s biggest fuel-consuming nation.
Futures gained as much as 0.8 percent. Commerce Department data show purchases rose 0.7 percent last month, the most since June.
WTI for January delivery rose 40 cents, or 0.4 percent, to $97.84 a barrel at 9:32 a.m. on the New York Mercantile Exchange. The volume of all futures traded was 31 percent below the 100-day average. Futures are up 6.6 percent this year.
Brent for January settlement slid 80 cents, or 0.7 percent, to $108.90 a barrel on the London-based ICE Futures Europe exchange. The volume of all futures traded was 9.3 percent lower than the 100-day average.
EIA - Weekly Natural Gas Storage Report
Working gas in storage was 3,533 Bcf as of Friday, December 6, 2013, according to EIA estimates. This represents a net decline of 81 Bcf from the previous week. Stocks were 273 Bcf less than last year at this time and 109 Bcf below the 5-year average of 3,642 Bcf. In the East Region, stocks were 155 Bcf below the 5-year average following net withdrawals of 46 Bcf. Stocks in the Producing Region were 41 Bcf above the 5-year average of 1,173 Bcf after a net withdrawal of 9 Bcf. Stocks in the West Region were 6 Bcf above the 5-year average after a net drawdown of 26 Bcf. At 3,533 Bcf, total working gas is within the 5-year historical range.
NYMEX Natural Gas Week-to-Week Price Change
Natural Gas Futures - Five Year Price
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