Do Your Employees Understand Wholesale Power Markets?

by Enerdynascreen_marketsmics Staff

Do your employees understand the electric services that are bought and sold in wholesale markets? Do they know which services are traded in bilateral, exchange, and centralized ISO markets? Can they explain to coworkers and customers how these markets work and how prices are determined? Are they able to analyze business opportunities and risks in the various wholesale markets? If not, Enerdynamics’ newest online course, Wholesale Power Markets, can help.

The course is actually a major update/upgrade to an existing course. Recently released, Wholesale Power Markets focuses on the electric services bought and sold in wholesale markets and replaces Electric Market Dynamics. Power markets have become increasingly important in recent years with the growth of gas-fired generation owned by independent power producers, the increase in renewables, and the expansion of ISO market areas. As a result, a clear understanding of how markets are organized as well as how services are traded is essential to many in the industry.

This updated course provides the most current information on power markets to keep your employees informed of what’s happening now in this fast-paced industry. Frequent updates also allow your employees to receive the benefits of technology evolution — Wholesale Power Markets is now available for viewing on all platforms including desktops, tablets, and even mobile phones.

Wholesale Power Markets comprises the following modules:

  • Introduction to Wholesale Power Markets
  • Power Market Structures and Participants
  • Electric Supply and Demand
  • Power Services and Markets
  • How Power Markets Work

As with all of Enerdynamics’ online courses, Wholesale Power Markets includes quality audio and graphics, interactive exercises and quizzes, and valuable material downloads. It can be viewed continuously or in small increments as an employee has time. View a short demo of Wholesale Power Markets or get more details on the course and its content.

The full-length course can be purchased or licensed on its own, or the modules are also available on a stand-alone basis. For more information and bulk pricing options, please contact John Ferrare at 866-765-5432 ext. 700 or info@enerdynamics.com.

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What Can the Energy Industry Expect Under the Trump Administration? Part II

by Bob Shively, Enerdynamics President and Lead Facilitator

Last week we looked at how the incoming Trump administration may or may not significantly impact What's next on the chalk board and US flagthe energy industry, particularly the natural gas and coal sectors. This week we continue the discussion but are examining how a Trump presidency may impact renewables, energy efficiency, and electric transmission/distribution sectors.

Renewables

Possible Trump policies impacting the renewable energy business:

  • Support for fossil fuel development
  • Reduced support by federal agencies for renewables and reduced funds for research and grants
  • Possible reversal of environmental regulations and international agreements that foster renewables development, especially the CPP and the Paris Agreement
  • Reduction in corporate tax rates
  • Support for infrastructure development

Possible impacts on markets:

  • For utility markets, the current development is driven by two factors: state level renewable portfolio standards (RPS) and economics (in cases where renewables are chosen for economic reasons in the Integrated Resource Planning). It does not appear that federal policies will impact existing state RPSs. As long as the Production Tax Credit stays in place, federal policies will not adversely affect the economic attractiveness of renewables.
  • Many renewable projects are being driven by corporate buyers (numerous big corporations now have significant goals to buy renewable power for economic or business policy reasons). It does not appear that federal policy will impact these goals.
  • Full implementation of the CPP could mean states that do not strongly support renewables must move to renewables to achieve CPP requirements. If the Trump administration fails to implement or enforce the CPP, we may see reduced growth in states implementing new RPS requirements.
  • Reduction in research, grants, and federal agency support for renewables may restrict future growth that otherwise may have occurred.
  • Reduction in tax rates improves the economics of large capital projects such as renewables development.
  • If Trump’s support for infrastructure includes federal policies to stimulate modernization of electric transmission and distribution this could further the capability of the grid to economically absorb more renewables.

Net impacts on renewables:

The negative impact on renewables may be less than it appears on the surface. Since initial growth in renewables has been stimulated by market developements, support by states, cost reductions, and Obama administration polices, future federal policy may not be a big factor. And paradoxically, some policies such as lower tax rates and infrastructure support may provide a boost to renewables. Also, it’s important to remember that much of Trump’s support came from Midwestern states that have been successful in profiting from development of wind power resources. So repeal of the Production Tax Credit appears unlikely.


 

Energy Efficiency

Possible Trump policies impacting energy efficiency:

  • Support for fossil fuel growth, reduction in regulations, and “getting government out of the way” would appear to foreshadow a lack of support for energy efficiency initiatives (though Trump has been very silent on the topic of energy efficiency).

Possible impacts on markets:

  • Reduced federal regulations such as appliance standards that foster energy efficiency may result in reduced growth in energy efficiency.
  • Reduced federal agency support could result in less government spending on energy efficiency.

Net impacts on energy efficiency:

Possible reduction in emphasis on and support for energy efficiency initiatives.


 

Electric Transmission and Distribution

Possible Trump policies impacting electric T&D:

  • Reduction in tax rates
  • Support for infrastructure development

Possible impacts on markets:

  • Reduction in tax rates would improve project economics.
  • If Trump includes the electric system in his apparent push for infrastructure development, policies could help stimulate growth and modernization of T&D systems.

Net impacts on electric T&D:

The potential impacts are uncertain, but we could see a boost in T&D modernization.

So, in conclusion, what can we say about a Trump administration’s impact on energy markets? In this case, it appears that markets trump (sorry for the pun) presidential politics. While the new administration may seem like an extreme departure from Obama’s policies, it appears that when actual market impacts are considered, the change may prove to be not much at all.

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What Can the Energy Industry Expect Under the Trump Administration?

by Bob Shively, Enerdynamics President and Lead Facilitator

President Obama took office eight years ago determined to address the United States’ emission of greenhouse gases (GHG). The President was unsuccessful in getting Congress to take much action other than extending renewable production tax credits. And when Obama attempted to use regulation instead of Congressional action to address greenhouse gases, the EPA’s Clean Power Plan (CPP) became tied up in court.

But interestingly, market forces aided by actions of federal agencies have surprisingly helped reduce greenhouse gas emissions. The U.S. Department of Energy (DOE) recently reported that U.S. energy-related greenhouse gases for the first six months of 2016 are the lowest since 1991. Federal policies fostered by the DOE, Defense Department, FERC, and other agencies helped stimulate growth of green technologies including renewables, storage, and smart grids. Increases in energy efficiency kept electric loads from growing even as the economy rebounded. The Obama administration also supported natural gas development — U.S. natural gas production grew by 33% since Obama took office, and U.S. exports of natural gas grew by 117%. So now as we transition to the Trump administration, what changes can we expect?

It’s hard to predict as there seems to be a significant gulf between Trump’s campaign statements and his statements as president-elect. But looking at what we know, it appears that while regulatory direction and other policies will change, the ultimate market direction will surprisingly be no different than under Obama. This means we can anticipate more growth of natural gas and renewables, ongoing decline in coal, and more reduction in U.S. greenhouse gas emissions.

This week, let’s look at how a new administration may impact the natural gas and coal industries. Next week we’ll conclude with a look at the renewables, energy efficiency, and electric transmission/distribution sectors.

Natural gas

Possible Trump policies impacting the gas business:

  • Ease in restrictions concerning drilling on federal lands
  • Reduction of federal environmental regulations of gas production
  • Strong federal support for hydraulic fracturing
  • Quickened approvals on new pipeline projects
  • Support for growth in gas exports
  • Support for growth of U.S.-based manufacturing
  • Support for coal

Possible impacts on market:

  • Costs of production may slightly decline due to cheaper land availability and less money spent on environmental protection.
  • But, given that we are already in a supply glut, this may not change dynamics much as producers don’t have the market for any new supplies they could theoretically access.
  • New pipeline projects could help move gas from regions with excess supply to markets, but currently the barriers to new pipeline development generally are either economic or due to local opposition, so this may not have much impact.
  • In theory, growth in gas exports and growth in U.S. manufacturing could boost demand for natural gas and thus help support price. Petrochemical development in the Northeast could help boost demand there. As for exports, there is already a global glut of LNG supply, so in the short term it appears that exports to Mexico are the primary growth engine. Trump has talked extensively about the negative aspects of trade with Mexico, which may impede this scenario.
  • If coal makes a comeback, it will primarily reduce gas-fired electric generation.  We don’t believe this will occur much (see coal section of this article), but if it does, it will offset any demand growth from manufacturing.

Net impacts on natural gas:

Not a significant change; perhaps lower overall natural gas prices and slightly more demand.


Coal

Possible Trump policies impacting the coal business:

  • Ease in restrictions on coal development on federal lands
  • Ease in environmental rules (or maybe ease in enforcement of current rules) on coal-fired generation
  • Maybe other federal policies concerning tax benefits or subsidies to try to maintain employment in coal industry
  • Desire to foster coal exports

Possible impacts on markets:

  • Trump policies may extend the life of some coal-fired power plants that are currently marginal since plant owners may not be required to install emissions technologies. But many of these units have been retired already or are uneconomic compared to alternatives.
  • And, given that it appears that Trump’s policies may reduce natural gas prices, coal will be less competitive vis-à-vis gas.
  • Paradoxically for units owned by utilities, older depreciated assets that do not require new capital investment become less attractive since capital investment is what generates utilities’ earnings. In some cases, this may reduce a utility’s interest in keeping older units open.
  • Possible ongoing growth in renewables mixed with low gas prices will reduce potential revenue for coal units in competitive markets.
  • Exports could grow, but federal policy is not likely the issue currently limiting exports. Most incremental global demand for coal is from Asia, whereas current U.S. export capability is on the East Coast. Recent attempts to expand port facilities in Washington and Northern California to foster coal shipping have met extreme local opposition that the federal government may be unable to overcome.

Net impacts on coal:

Not much impact, although the life of certain marginal electric generation units may be extended.



As mentioned, next week we’ll examine how renewables, energy efficiency, and electric transmission/distribution may be impacted.

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Natural Gas Companies Can Control Methane Emissions to Become More Environmentally Friendly

by Bob Shively, Enerdynamics President and Lead Facilitator

Greenhouse gas emissions by the electricity industry have declined significantly in recent years due mainly to natural gas generation displacing coal generation as well growth in renewables output and flat end-use load growth. But, there are concerns that with the shift to natural gas generation, we are not accurately accounting for the full emissions impact of using gas to generate electricity.

co2-emissions-by-source
Source: Today in Energy, October 12, 2016, Energy Information Administration (EIA)

 

As stated on the Environmental Defense Fund (EDF) website:

“There has been much debate about the climate implications of increased natural gas usage. While it is true natural gas burns cleaner than other fossil fuels, methane leaking during the production, delivery and use of natural gas has the potential to undo much of the greenhouse gas benefits we think we’re getting when natural gas is substituted for other fuels.”

Leakage of natural gas, which is primarily methane, is of significant concern because methane is 28 times more potent as a greenhouse gas than carbon dioxide (which is gas released when methane is combusted) measured over a 100-year time span. Methane is even more potent when measured over a shorter time span. So any releases of methane during production, processing, transport or distribution of natural gas negate some of the benefits of shifting generation from coal to gas.

But, the good thing is that we are learning how to reduce methane leakage. Over the last few years, EDF worked with universities, research organizations, and natural gas companies in 16 studies to learn more about methane emissions. Let’s explore some of the conclusions…

The Natural Gas Delivery System

NG delivery system.png

source: Enerdynamics

 
The EDF studies found the following key issues resulting in methane emissions:

Upstream

  • When measured, overall emissions of methane often prove to be much higher than previous estimates.
  • Emissions from equipment leaks and pneumatic devices are larger than previously thought.
  • Techniques to reduce emissions from well completions are 99% effective at capturing 99% of the methane previously vented.
  • Emissions from two sources, pneumatic controllers and liquids unloadings, are responsible for a significant portion of upstream methane emissions.
  • Unpredictable events such as malfunctions and maintenance have a strong influence on emissions rates.
  • Methane leakages from gathering systems are eight times larger than previous official estimates.
  • Concentrations of super emitters (sources responsible for a disproportionate amount of methane) are widespread and unpredictable, but they can be easily identified through monitoring.

Midstream

  • Compressors and equipment leaks are two primary sources of methane emissions in the midstream sector.

Downstream

  • Methane emissions from local natural gas distribution systems are significant especially in regions with older infrastructure.
  • Methane emissions often occur due to leaky pipelines that are not addressed because the level of leakage does not create a safety risk.
  • Natural gas emissions from gas meters and from customer-owned appliances such as furnaces, boilers, and hot water heaters are significant.

EDF then identified different techniques that, coupled with better and more frequent monitoring, can reduce methane emissions. In some cases the techniques have a net savings due to value of the captured methane. In other cases, costs are high.

EDF graphic.png   Source: EDF website

The advantage is now that it is more clear what causes methane emissions, the gas industry has the knowledge to become part of the solution in increasing environmental benefits of switching from other fossil fuels to natural gas.

 

 

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Electricity Will Bypass Any Border Walls

 

by Bob Shively, Enerdynamics President and Lead Facilitator

In recent years, U.S. imports of electricity from Mexico have grown significantly, mostly through bilateral energy sales into California. As Mexico implemented its electricity market reform earlier this year, Mexican officials expressed a desire to foster enhanced cross-border trading with the U.S. to the north and with Central America to the south.

Now Mexico appears poised to become part of the California ISO (CAISO) Energy Imbalance Market (EIM), which would have generators in northern Baja California actively participating in the CAISO real-time energy market. And with future plans for integrating the Baja grid into the Mexico National System, this could further extend integration of the Western U.S. and Mexican markets.

us-electricity-imports-from-mx

mx-map

What is the EIM?

The EIM is an organized market that allows participating generators across portions of eight western U.S. states to offer their units into the CAISO real-time energy market. This means that generators located within the service territories of Arizona Public Services, Nevada Energy, PacifiCorp, and Puget Sound Energy can now offer to ramp their generation up or down based on economic decisions made by the CAISO. In return, these generators are compensated through real-time energy payments as determined by the CAISO real-time energy price.
eim-map

This market creates benefits including:

  • More efficient dispatch of units between regions since efficient units in one region are now available to handle real-time needs in other regions
  • More efficient dispatch of units within regions since dispatch is now done automatically based on economic generation offers
  • Reduced curtailment of renewable energy resources since unexpected variability in one region can be balanced by resources in other regions
  • Reduced need for regions to carry flexible reserves since the requirements for reserves can be shared between regions

CAISO’s analysis shows the EIM resulted in $26.16 million of net benefit in the 3rd quarter of 2016 and has resulted in a cumulative benefit of $114.35 million since market inception in November 2014. In the third quarter of 2016, the market also allowed an additional 33,094 MWh of renewable energy to be dispatched, resulting in a reduction of 14,164 metric tons of CO2 output compared to what it would have been if the market was not in place.

Mexico’s Participation in the EIM

In October, the CAISO and the Mexico ISO, El Centro Nacional de Control de Energía (CENACE), announced the initiation of a study to explore participation of the Baja California Norte grid in the EIM. Baja, which as of 2014 has about 600 MW of renewable generation (including geothermal energy sold in a bilateral contract to the City of Los Angeles) has the potential for significantly growing renewable generation. As referenced in a recent paper by ICF International, studies have suggested that Baja could develop as much as 10,000 MW of wind generation with additional geothermal and solar resources.

But with internal demand of only a few thousand MW on a typical day, northern Baja is unable to utilize its potential resources without an external means of balancing variable renewable supply. Meanwhile, California is moving forward with implementing its 50% renewables requirement, and imports from Baja may well be a low-cost renewable source. So, we have a potential low-cost supplier sitting next door to a buyer with significant needs and an existing market mechanism that can make it happen fairly easily. Given these factors, we can conclude that despite recent negative political rhetoric about cross-border trade with Mexico, U.S. and Mexican electricity markets are going to become increasingly integrated.

 

 

 

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Are Zero Marginal Costs Transforming the Energy Industry?

by Bob Shively, Enerdynamics President and Lead Facilitator

In his 2014 book The Zero Marginal Cost Society, futurist Jeremy Rifkin states his view that  “the emerging Internet of Things is speeding us to an era of nearly free goods and services.”[1]

Specifically, Rifkin describes how once initial capital costs are spent, more and more goods and services have almost no marginal cost[2] to produce. An example is the music industry where digital versions of songs, once recorded, have virtually zero marginal cost to provide copies to consumers. In a recent talk in Chicago, Rifkin described his views on how this applies to the energy industry. These were summarized as follows by the Energy Times[3]:

“The Third Industrial Revolution will see a decline in massive vertical power structures in favor of a horizontal, distributed model. Economies will move from a seller-buyer model to a provider-user model. More and more industries – just like the music and entertainment industries have already experienced – will make the shift to operating off of very low margins of very high traffic.

The same will hold true for energy companies. In this highly distributed model almost every community, no matter the size, will be generating it’s [sic] own power off of solar and wind. Energy will become amazingly cheap, and energy companies will make their money through partnerships with their customers and clients to manage those distributed networks.”

Certainly, the energy world is becoming familiar with the concept of low marginal costs.  Advances in the natural gas industry including horizontal drilling and hydraulic fracturing have resulted in a natural gas resource with very low marginal cost that has driven prices to sustained lows not seen since the early 2000s. And in both the generation and the utility distribution side of the business almost zero marginal cost renewable generation is roiling business practices built on the concept that both capital costs and variable costs could be spread across all customers in a “fair” manner determined by long-standing regulatory principles.

variable-expenses-by-resource

Rifkin suggests that utilities must be preparing for the Third Industrial Revolution by running two parallel business models. One focused on continuing to provide reliable service in today’s energy world primarily driven by fossil fuels, and one focused on transitioning the company to the future.  He suggests that utilities prepare for the future by setting “up partnerships with thousands and thousands of enterprises. You have to manage their energy flow on an on [sic] internet platform, helping them to mine the analytics of their big data and their energy flows.”[4]

Interestingly, this echoes the direction the State of New York is taking in the ongoing Reforming the Energy Visions (REV) proceeding where regulation will be reformed to move electric utilities to become distribution systems platforms[5]. Over time, New York envisions that utility revenues will become more and more driven by market-based earnings associated with network services. Below illustrates NY PSC’s vision for future utility earning sources.earning-sources-over-time

Transforming a company while also keeping the lights on in today’s world is not an easy task. Certainly some utilities will do better than others. A recent study by Lux Research[6] suggested that some of the utilities leading the way include the European utilities E.ON, Enel, Engie, and RWE plus the U.S. utilities SDG&E, Exelon, and Duke.

hr_7_3_16_1-0

Of course, who wins and who loses in the coming new world remains to be seen. But what appears certain is that future energy companies will be as dramatically different from our traditional utilities as today’s mobile carriers are different from the Bell telephone companies of yesteryear.


Footnotes:

[1] If you have 10 minutes, we recommend Rifkin’s video at https://www.youtube.com/watch?v=3xOK2aJ-0Js

[2] For an explanation of marginal costs, see http://www.investopedia.com/terms/m/marginalcostofproduction.asp?lgl=no-infinite

[3] Bold New Power Vision at Empowering Customers & Cities 2016, Steve Spaulding, The Energy Times, November 3, 2016, http://tdworld.com/energy-times/bold-new-power-vision-empowering-customers-cities-2016

[4] Utilities Must Partner with Thousands, the Energy Times, October 6, 2016, http://tdworld.com/news/utilities-must-partner-thousands-0?utm_rid=CPG04000000071983&utm_campaign=10742&utm_medium=email&elq2=60f97daa7c6f478e8e6af8489d0077d7

[5] See Enerdynamics blog, New York’s REV a New Model for the Electric Business Worldwide?  https://blog.enerdynamics.com/2016/04/21/new-yorks-rev-a-new-model-for-the-electric-business-worldwide/

[6] http://blog.luxresearchinc.com/blog/2016/07/leaders-and-laggards-in-the-race-to-create-the-utility-of-the-future/

 

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LNG Goes Off the Grid

by Christina Nagy-McKenna, Enerdynamics Instructor

Liquefied natural gas fueling station

This liquefied natural gas fueling station at INEEL was built by MVE, Inc. and provided to INEEL by Amoco LNG. As part of its liquefied natural gas R&D program, INEEL uses this skid-mounted LNG fueling station that can be moved to various locations to service its natural gas vehicles. (Photo credit: NREL)

Liquefied natural gas (LNG) may soon be available to customers who, due to infrastructure restraints, do not have the option to choose natural gas as a fuel source. ISO (International Organization of Standardization) containers that fit on rail cars, truck trailers, and container ships and can hold 10,000 gallons of LNG are the lynchpin to opening these new markets. The 40-foot by 8-foot containers hold the equivalent of 830 Mcf of natural gas, enough to meet the annual consumption of 13 American households[1], and they offer an alternative delivery system to the large tanker ships that have been used for many years.

Mainland, remote U.S. markets are the target for one project that utilizes ISO containers, while another company is focused on more distant markets in Alaska, Puerto Rico, the Bahamas, and the Caribbean. Each will offer new choices to customers as they manage their environmental and business goals.

In Port Allen, La., NuBlu Energy recently began construction on a small-scale LNG plant that will ship containerized LNG to U.S. markets that do not have access to natural gas pipeline infrastructure. While the company is currently focused on high-use, industrial, and power generation end-use customers, shipping LNG in ISO containers also could be useful to smaller companies that cannot afford the high cost of traditional gas pipeline infrastructure expansions. The first phase of NuBlu’s project will produce up to 30,000 gallons of LNG per day. The company plans to expand to 90,000 gallons per day with 120,000 gallons of on-site storage capacity.

William H. Martin, Inc., a USA waste services company, Waste Management of PA, fueling station

photo credit: NREL

Crowely Maritime entered the LNG market by purchasing Carib Energy LLP in 2013. Among its energy services, Carib LLP, now a Crowley subsidiary, offers containerized transportation of LNG to markets in Alaska, Puerto Rico, the Bahamas, and the Caribbean. Small-scale LNG deliveries in ISO containers has helped the company reach end users such as Molinos de Puerto Rico, the largest supplier of flour to Puerto Rico.  Using ISO containers, Crowley will transport LNG that it will purchase from Pivotal LNG to its shipping facility in Jacksonville, Fla. From there the containers will be loaded onto a ship and delivered to Puerto Rico where Crowley will oversee the delivery of the containers to the Molinas plant.

These are but two examples of the possible markets that containerized LNG will reach in future years. If the ISO distribution and LNG fuel technologies continue with their early joint success, remote end-use customers will eventually have more fuel choices like the many customers who are connected directly to the gas pipeline grid.


Footnotes and references

[1] 2009 Residential Consumption Survey, Table CE3.1, Household Site End-Use Consumption in the U.S., Totals and Averages, 2009, U.S. Energy Information Administration, January 11, 2013.

Containerized LNG Broadens Reach of Natural Gas to Off-grid Customers,” October 26, 2016, U.S. Energy Information Administration.

 “Crowley to Supply LNG to Alaskan Power Plant,” LNG World News, October 16, 2016.

Pivotal LNG, Crowley’s Carib Energy Reach Multi-Year Supply Agreement for Puerto Rico,” News and Media, August 31, 2016, Crowley Maritime Corporation website.

2009 Residential Consumption Survey, U.S. Energy Information Administration.

 

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