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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.

Please feel free to share this article.  If you do, please email or post the web link.  Unauthorized copying, retransmission, or republication is prohibited.

All images copyright 2020 Avalon Energy® Services LLC

Copyright 2020 by Avalon Energy® Services LLC

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In the News: Jeff Dowdell Talks CHP, Natural Gas, and More

By Evelyn Teel

Avalon Energy Services Senior Energy Consultant Jeff Dowdell was the featured guest on the most recent Energy Sense Podcast. Check out the episode to learn about combined heat and power (CHP) – what it is, how it can reduce costs and improve efficiency, and how it improves resilience. Jeff also discusses the future of natural gas as the US moves towards a more renewables-focused fuel mix, as well as considerations for deciding to work with an energy consultant. Interested in a career in the energy industry? Jeff has advice for you, too.

The 23:45 podcast can be found at the following link: https://energy-sense-podcast.simplecast.com/episodes/energy-generation-the-efficiencies-of-combining-heat-and-power-and-how-to-hire-an-energy-consultant

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

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 2020 by Avalon Energy® Services LLC

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Shale We Review the 2010s?

By Evelyn Teel and Jim McDonnell

With the decade coming to a close, this is a perfect opportunity to look back at how the energy market has changed over the past ten years. It has certainly been a whirlwind ride, starting shortly after the 2008 stock market crash and continuing through the Great Recession and the subsequent recovery. The decade also saw the shale gas revolution take hold. Arguably the most significant change in the energy market over the past ten years, the shale gas revolution has not only provided great economic benefit within the United States but also reshaped our position on the world stage.

The two technologies instrumental to the shale gas revolution – hydraulic fracturing (i.e., fracking, or inducing porosity and permeability in rock) and directional drilling (greatly increasing a wellbore’s exposure to hydrocarbon bearing formations) – have been around for decades. However, Texan George P. Mitchell of Mitchell Energy & Development Corp., through sheer determination and personal will over seventeen years, was able to advance and combine these technologies, thus enabling the extraction of natural gas from shale formations that are of low porosity (i.e., not much pore space in the rock) and low permeability (i.e., the pore spaces are not well interconnected). These formations underlie large swaths of the United States, and the proven reserves of natural gas have consistently increased over the past decade.

The shale gas revolution is commonly considered to have started in 2008, and in the 2010s, we have witnessed the remarkable changes that have resulted from its growth. As fracked wells have come online, the ready supply of low-cost natural gas has transformed the energy industry in America and the world. The graph below on the left shows the volume of natural gas produced daily in the United States between 1997 and 2010, measured in billions of cubic feet per day (Bcf/day). Production over this period remained relatively flat, averaging about 50 Bcf/day. Compare that to the graph on the right, which shows the volume of natural gas produced in the United States from 2010 to the present. The volume of natural gas produced daily has very nearly doubled to about 93 Bcf/day.

Though demand for natural gas has increased, the more dramatically increasing supply of natural gas has driven down its price. The graph below shows how US natural gas prices at the Henry Hub have declined from about $6 per million Btu (mmBtu) to $2.19 per mmBtu today.  

Due to the increased availability of cheap, abundant natural gas, an increasing number of liquified natural gas (LNG) export terminals have come online, and the United States has become a major exporter of LNG. This reverses a long-term trend of rising LNG imports. The graphs below show US LNG imports and exports from 1985 – 2009 (left) and 2010 – 2019 (right).

In most parts of the country, natural gas prices and electricity prices are strongly correlated. As natural gas prices move so do, generally, electricity prices. Thus, as natural gas prices have fallen, electricity prices have fallen as well. The graph below shows wholesale electricity prices in the Mid-Atlantic measured in dollars per megawatt-hour ($/MWH). Wholesale electricity prices are almost half of what they were ten years ago.   

The abundance of natural gas and the declining prices of natural gas and electricity have been driven by the dramatic increase in shale gas production.  

The map and graph below identify the regions and geological “plays” in the US where shale gas production is occurring. Shale gas production has increased to two-thirds of this rising total US natural gas production from only a minor contribution only ten years ago.    

Source: US DOE EIA

Though many people doubted fracking would work with crude oil deposits, as oil molecules are much larger than those of natural gas, Mark Papa of EOG Resources, Harold Hamm of Continental Resources, and others have been able to adapt fracking technology to the extraction of oil. We have thus seen a shale oil revolution take hold, which has brought benefits similar to those of the shale gas revolution. It has driven down petroleum prices in the United States and dramatically reduced our dependence on foreign oil.  The US recently became a net exporter of oil products (refined petroleum and crude oil). Overall, the US is now the world’s largest producer of natural gas (93 Bcf per day versus 58 Bcf per day during 2010) and crude oil (13 million barrels per day versus 5.5 million barrels per day during 2010). 

The shale revolutions have significantly changed the US energy landscape over the past decade. They have brought online abundant sources of low-cost domestic energy, which have driven down consumer prices, boosted our economy, created jobs, improved America’s energy security, and increased revenue to state and local governments and the federal government. Fracking and directional drilling require a smaller footprint than traditional drilling, and have helped reduce CO2 emissions as natural gas is being substituted for coal in electricity generation. Low cost, abundant natural gas complements intermittent sources of energy such as wind and solar.

In addition to all the benefits noted above, low energy prices in the United States have expanded the manufacturing sector and made the country more attractive to companies willing to relocate from overseas. Indeed, the shale revolutions have done nothing less than improve the United States’ geopolitical position, reducing our dependence on foreign oil and shoring up our export capacity.

Like any fuel source, shale gas comes with trade-offs. There are concerns about induced seismicity, water and air pollution, and health impacts. Further technological advances and refinements in the field may alleviate these concerns, and we look forward to seeing how this industry progresses in the 2020s.

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

Please feel free to share this article.  If you do, please email or post the web link.  Unauthorized copying, retransmission, or republication is prohibited.

All images copyright 2019 Avalon Energy® Services LLC

Copyright 2019 by Avalon Energy® Services LLC

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Wind Power, Transmission Lines, and a Vision for a Better Electric Grid

By Evelyn Teel

Wind energy is an incredible resource with incredible potential. The generation costs are low, the efficiency of turbines continues to increase, and the threat to birds continues to decline. An unfortunate irony, however, is that the places with the most prolific wind energy tend to be places with relatively little demand for power.

West Texas, the Dakotas, Kansas, the Oklahoma panhandle – these are all places where the wind blows powerfully and fairly consistently. However, getting electricity generated by that wind to the population centers that most need it is challenging in the current environment. The decentralized nature of the US power grid means that moving electricity across state lines and between regions is difficult, and sometimes seemingly impossible. 

A wind farm

Several people have envisioned networks of high-voltage transmission lines that could move power from areas of abundant wind energy (as well as solar energy) to areas that could use that power. Russell Gold’s book Superpower centers on one of those people.

Michael Skelly conceptualized a series of high-voltage, direct current transmission lines radiating out from the center of the United States to points east and west. Little did he realize, however, quite how complicated it would be to implement that vision. With differing economic, political, regulatory, and cultural realities in different states, overlain by the interests and powers of the federal government, Michael Skelly’s company, Clean Line Energy Partners, would require agreement from myriad stakeholders in order to make their project a reality.

High-voltage transmission lines and supporting tower

Though Superpower focuses primarily on Michael Skelly – including earlier ventures that prepared him for the task at hand – the author incorporates a wealth of information about the history of the electric grid and the energy field. He provides fascinating background about major developments that have led to the system we have in place today, from the first factory with generator-powered electric lights to the first centralized power plants to the first “experiment” in which wind energy was fed back into the electric grid. He also illustrates the massive declines in the cost to generate wind energy, along with the growth in the size of wind farms.

The electric grid has evolved over time such that electricity is generated and used within the same general area – first, within the same building; then, the same city; and now, the same region. In order for renewable energy to provide a sizeable percentage of our electricity needs, the next step in that evolution will need to be transmission lines that allow electricity to be moved across regions. The book’s extensive discussions of the various players in this drama – utility companies, public service commissions, elected officials, landowners, federal agencies – and their interests and motivations bring clarity to the challenges facing anyone attempting to modernize the grid. It is also fascinating to learn how differently various states approach the energy industry, and how state and federal powers intersect.

Russell Gold is clearly very sympathetic to Michael Skelly and comes across at times as more cheerleader than reporter. However, looking beyond the fanfare, the reader can gain a strong understanding of the challenges facing the US as we seek to incorporate more renewable energy, update the electric grid, and increase the resilience of our power supply.

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

Please feel free to share this article.  If you do, please email or post the web link.  Unauthorized copying, retransmission, or republication is prohibited.

All images copyright 2019 Avalon Energy® Services LLC

Copyright 2019 by Avalon Energy® Services LLC

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Maryland Renewable Energy Portfolio Standard – A Lot of Change for No Action

During this year’s legislative session, the Maryland General Assembly passed the Maryland Clean Energy Jobs Act.  Maryland’s governor, Larry Hogan, then had until 30 days after the legislative session (i.e., until May 30) to sign the bill, veto the bill, or take no action.  By taking no action, the bill would automatically become law.  The governor took no action and the bill is now law. 

RPS

The new law increases Maryland’s renewable energy portfolio standard (RPS) from 25% by 2020 to 50% by 2030.  This is shown graphically below, along with Maryland’s original 2004 and 2017 RPS goals (also see Maryland RPS – Veto Override):

Solar Carve Out

The law also increases the “solar carve out” from 2.5% by 2020 to 14.5% by 2028.  This is a dramatic increase and is shown graphically below: 

The following table shows the Maryland solar carve out as a percentage of the total Maryland RPS, increasing from 10% in 2019 to about 30% in 2027 and beyond.

SRECs

Prior to the bill being passed by the Maryland legislature, Maryland renewable energy credits (SRECs) were trading at about $16 per megawatt-hour.  Upon passage of the bill, Maryland SRECs increased to about $47 per megawatt-hour.  With the bill now becoming law, Maryland SRECs have increased in value to $63 per megawatt-hour. 

Economic Value

A 45 megawatt solar project with a 15% capacity factor would generate 59,130 megawatt-hours per year:

45 megawatts x 15% CF x 8,760 hours per year = 59,130 megawatt-hours

Prior to the bill being passed by the Maryland legislature, 59,130 megawatt-hours of Maryland SRECs were worth $946,080 annually.  With the passage of the bill, this value increased to $2,779,110.  With the bill now law, the value has increased to $3,725,190.  Please note that this ignores transaction costs.

Thought of in units generally used in utility billing, these SREC values equate to an increase from 1.6 cents per kilowatt-hour to 6.3 cents per kilowatt-hour. 

This represents value to the owner of the SRECs in addition to the value received for the energy production from the solar facility. 

If the energy output of the solar project in this example is sold for 6 cents per kilowatt-hour, SRECs now add another 6.3 cents, for a total of 12.3 cents per kilowatt-hour.   

That’s a lot of change for no action. 

Note:  This Maryland legislation includes a grandfathering provision, meaning that customers who sign up for or extend their supply contracts before the grandfathering period ends are grandfathered from the additional RPS costs until the expiration of the grandfathered contracts.  This is a good time to consider extending your electricity supply contracts.  Contact us for more details.

Evelyn Teel contributed to this article.

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

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 2019 by Avalon Energy® Services LLC

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Avalon Energy Services Turns 10 Years Old This Month

Late 2008/early 2009 was an unsettling time.  Bear Stearns was bailed out, Lehman Brothers went bankrupt, the housing market collapsed, credit markets were frozen, the stock market fell more than 40%, the unemployment rate was approaching 10%, and energy markets were in turmoil.  The Great Recession was underway.  Despite this uncertainty, during April of 2009, Avalon Energy Services, LLC was established. 

More than a few of our family and friends suggested we were crazy to start a business during such a difficult economic time.  We probably were.  But, with expanded customer choice and intense energy commodity price volatility, confusion was immense and we saw a clear need among energy users for independent and objective energy-related advice.  Our belief was that with a singular focus on the individual needs of energy users, we could help.  So, we set off on a mission to help commercial and industrial customers “save energy and save money.” 

Today, energy users have more options than ever for energy procurement and usage, including onsite and offsite renewable energy, energy storage, and combined heat and power (CHP), to name just a few.  Sustainability has also become a major consideration, and customers have access to numerous options for ensuring their energy usage aligns with their needs and priorities. 

Referrals from satisfied customers have enabled Avalon to grow and serve an expanded market, but we continue to maintain a singular focus on each customer’s individual needs and priorities.  The turmoil of the Great Recession may have abated, but the need for professional guidance in navigating energy usage, procurement, and sustainability has only grown.  At ten years old, we are proud to continue to provide our customers with top quality independent and objective advice based on sound economics.

Evelyn Teel wrote this article.

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

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 2019 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.

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 2019 by Avalon Energy® Services LLC

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Electricity, meet Rock

For several years, the U.S. Geological Survey (USGS) has been investigating the potential effects of intense geomagnetic storms on electric utility infrastructure.  In 2016 they concluded,

“A severe geomagnetic storm could disrupt the nation’s power grid for months, potentially leading to widespread blackouts.  Resulting damage and disruption from such an event could cost more than $1 trillion, with a full recovery time taking months to years.” (1)

Bloomberg recently noted that in an upcoming report, the USGS more specifically identifies a stretch of the Interstate 95 corridor as particularly at risk of power outages related to geomagnetic storms.

This corridor is largely underlain by Paleozoic (very old) crystalline rock that acts as an insulator, reflecting back incoming energy from the sun, thus giving that energy a second chance to damage utility infrastructure.  Damaged electrical infrastructure, particularly utility transformers, can take many months to replace.

“Through a stroke of bad luck, the worst of these rocks basically traces the path of I-95 from Richmond, Virginia, to Portland, Maine, passing through Washington, New York and Boston along the way.” (2)

Putting aside for the moment the notion that rocks can be inherently good or bad, concerning how this connection between electricity and rocks may impact the electric grid, solutions are not simple.  Some may look to off-grid self-generation and battery storage for protection.  But, if a geomagnetic storm is strong enough to impact the grid, it also may impact the electric infrastructure at individual customers’ sites.

Faraday cages are a potential solution.  Faraday cages also may provide protection against EMPs (electromagnetic pulses).  More on this in the weeks ahead.

References:

Evelyn Teel, Ralph Russell and Jeff Dowdell contributed to this article.

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

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 2018 by Avalon Energy® Services LLC

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NCAC – 22nd Annual Washington Energy Policy Conference

ONE WEEK FROM TODAY

Secure your spot here: https://www.ncac-usaee.org/event-2845352

Energy Technologies and Innovations: A Disturbance in the [Market] Force

Thursday, April 12, 2018, 8:30 AM to 6:00 PM

The George Washington University

Keynote speakers:

Mark P. Mills, Senior Fellow, Manhattan Institute

Gil Quiniones, President and CEO, New York Power Authority

In addition to these keynote speakers, the following panels will be held:

PANEL 1: The Grid Awakens: Electricity Generation and Demand
Phil Jones, Executive Director, Alliance for Transportation Electrification
Bryce Smith, Founder and CEO, LevelTen Energy
John Zahurancik, COO, Fluence
Barney Rush, Board Member ISO New England, Rush Energy Consulting (moderator)

PANEL 2: Hydrocarbons Strike Back: Innovations to Maintain the Status Quo

John Eichberger, Executive Director, Fuels Institute
Sid Green, President, Enhanced Production Inc.
Mike Trammel, Vice President for Government, Environmental, and Regulatory Affairs, Excelerate
Rita Beale, CEO and President, Energy Unlimited (moderator)

PANEL 3: Innovation: A New Hope in Energy

Bill Farris, Associate Laboratory Director for Innovation, Partnering, and Outreach, National Renewable Energy Laboratory
Elisabeth Olson, Economist, Office of Energy Policy & Innovation, FERC
Christopher Peoples, Managing Partner, Peoples Partners and Associates
Devin Hartman, Electricity Policy Manager, R Street Institute (moderator)

PANEL 4: Return of Energy Policy

Adele Morris, Policy Director for Climate and Energy Economics, Brookings
Jason Stanek, Senior Counsel, House Energy & Commerce Committee, Subcommittee on Energy
Pat Wood, Chairman, Dynegy
Kevin Book, Managing Partner, ClearView Energy Partners (moderator)

Note: Chatham House Rules apply.

Full Agenda and to register –> http://www.ncac-usaee.org/events.php#event151

RSVP: Required

Conference Information:

Organizer: Michael Ratner, NCAC-USAEE Vice President (mratner@crs.loc.gov) / 202-707-9529
Venue: The George Washington University, The Marvin Center, 3rd floor, Continental Ballroom, 800 21st Street, NW, Washington, DC 20052

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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.

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 2017 by Avalon Energy® Services LLC