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Energy Prices finally come down. Electricity prices remain high. |
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ENERGY MARKET REPORT
After setting and breaking numerous records, oil prices have finally retreated from their peaks, dropping sharply in recent weeks. Since hitting a record of $145 per barrel on July 3, oil prices have fallen by more than $23 per barrel, providing much needed relief in the markets. Nonetheless, the Energy Information Administration (EIA) still forecasts that global supply uncertainties, combined with significant demand growth in China, the Middle East, and Latin America are expected to continue to pressure oil markets. WTI prices, which averaged $72 per barrel in 2007, are projected to average $127 per barrel in 2008 and $133 per barrel in 2009. Regular-grade gasoline is expected to average $3.84 per gallon in 2008, more than $1 per gallon above the 2007 average price. In recent weeks, however, gasoline prices have also retreated in conjunction with the fall in oil prices.
World oil consumption of liquid fuels and other petroleum is projected to grow by almost 900,000 barrels per day (bbl/d) in 2008 and by an additional 1.4 million bbl/d in 2009, while U.S. consumption is expected to decline by about 400,000 bbl/d in 2008. Adjusting for increased ethanol use, U.S. petroleum consumption is projected to fall by 530,000 bbl/d in 2008.
On the natural gas front, prices have also seen recent steep declines. The Henry Hub spot price averaged $13.07 per Mcf in June, $1.42 per Mcf above the average spot price in May. By July 29th, the price was down to $9.22 per Mcf, The reduction in prices is linked to the decrease in oil prices, an increase in onshore production, and a summer that has proven milder than expected. For reference, the Henry Hub natural gas spot price averaged $7.17 per thousand cubic feet (Mcf) in 2007 and is expected to average $11.86 per Mcf in 2008 and $11.62 per Mcf in 2009.
The recent spikes in fuel prices, particularly for natural gas, are pushing up electricity prices. Within the past few weeks, a number of utilities have requested permission from State regulators to raise electricity rates in response to rapidly increasing delivered fuel costs for power generation. It is likely that most other utilities will soon need to pass through these increased costs to retail customers as well. As a result, the forecast for growth in electricity prices is significantly higher than it was in the past. According to the EIA, average U.S. residential electricity prices are expected to increase by 5.2 percent in 2008 and by 9.8 percent in 2009, compared with an increase of 2.2 percent in 2007. Increases are also expected for commercial and industrial customers.
As always, EnerNOC encourages all organizations to assess their current and future exposure to energy markets to determine if now is an intelligent time to extend contracts or develop forward looking strategies. Regardless of one’s view on whether energy prices will rise or fall, organizations should assess their current positions to determine if there is an opportunity to save money and/or mitigate risk.
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Energy prices are down, but reasons behind the drop are not entirely clear. |
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WHAT IS HAPPENING WITH ENERGY PRICES?
The surprising and sharp drop in energy prices since the beginning of July is leading many to wonder what is happening with energy prices. According to an article published in the New York Times, fears of a prolonged energy shock seem to have subsided, at least for now. Some attribute the recent declines to the economic downturn, to a reduction in demand in the face of high prices, and to a milder than expected summer season.
The chief factor, to some, is the impact that high prices have had on consumers and overall demand. According to the New York Times, the chief energy economist at Lehman Brothers noted that “market’s expectations have changed very rapidly and unexpectedly. The market went out of control on the upside. But market participants realized there was much more demand destruction than had been thought even a month ago, that inventories are building up quickly, and that, in fact, more supplies are coming onto the market.” Indeed, many analysts believe energy prices could keep falling through the end of the year. The president of the OPEC oil cartel, Chakib Khelil, said Tuesday that oil might drop as low as $70 a barrel.
Despite the recent decreases, some still warn that prices could easily return to their peak levels. Many experts point to very specific events, such as a hurricane hitting the oil producing regions of the Gulf Coast, or renewed tensions in the Persian Gulf, as being capable of triggering another run-up in prices. Indeed, Bernard Baumhol, chief global economist at the Economic Outlook Group, notes in the New York Times article that “nothing tells us with any certainty that this decline can be sustained. Just as abruptly as they have fallen, oil prices can rebound because of geopolitical factors.”
As usual, there is no solid agreement as to the cause of price volatility in energy markets, and whether the recent declines are expected to last. The recent lull in prices may be an opportunity for certain energy users to improve their position in the market. Please do not hesitate to contact your EnerNOC representative to discuss your options.
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Texas has some of the most expensive electricity in the nation this summer. |
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HIGH ELECTRICITY PRICES IN TEXAS
According to an article published by the Wall Street Journal, Texas has some of the most expensive electricity in the nation this summer, even though the state boasted the cheapest power rates in the country only six years ago. Prices in Texas have steadily risen since the industry was freed from regulation. By encouraging competition, deregulation was expected to bring even lower energy prices, but the opposite has proved true. With gas accounting for about half of Texas’ power generation, compared with 20% for the nation as a whole, the recent run-ups in gas prices have had an instant impact on Texas electricity prices.
In recent months, five retail companies that sell electricity to homeowners and small businesses have failed. That has left customers facing unexpectedly high bills when they are switched to other, more-expensive retailers. Large corporations that buy electricity wholesale from power plants have not fared better. A state that once touted its plentiful power sources to energy-intensive industries such as chemical plants and refineries is now seeing "manufacturers look at Georgia and Alabama and see prices that are half what we're paying in Texas," says Tony Bennett, chairman of the Texas Association of Manufacturers, and quoted in the Wall Street Journal.
There is no relief in sight: "We could end up doubling last year's power prices," says Dan Jones, who monitors the market for the Texas Public Utility Commission to make sure it functions efficiently and is free of manipulation. And even though the impact is primarily on residential customers, large customers aren't immune. Some customers, when faced with contract option prices that seemed excessively high, decided to take their chances and buy power on the spot market. With prices sometimes reaching $4 a kilowatt hour for electricity, this option became a costly mistake for most.
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A summary of relevant energy developments. |
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IN OTHER NEWS
PG&E Seeks To Develop $850m Natural-Gas Plant
According to the East Bay Business Times, Pacific Gas & Electric wants to develop and construct a 560-megwatt natural-gas fired power plant in Eastern Alameda County near the border of San Joaquin County, on the site of the proposed Tesla Generating Station. Tesla, so-named for its proximity to PG&E's Tesla substation one-half mile away, was approved by the California Energy Commission in June 2004 as a project of Midway Power LLC, a subsidiary of the big Florida utility FPL Energy.
Connecticut Regulators Choose Three Peaking Power Plants
Connecticut regulators Wednesday selected nearly 700 MW of peaking projects in a solicitation that allowed utilities to vie for contracts and re-enter the generation business in the restructured state. In a final decision, the Department of Public Utility Control chose Bridgeport Energy II for 360 MW, GenConn for 188 MW and PSEG Power for 130 MW. All three projects are natural gas-fired peaking power plants. Only one utility project was selected, GenConn, which is a 50-50 joint project of United Illuminating and NRG Energy. In all, a dozen projects competed for the contracts. Connecticut Light & Power, the state’s largest utility, was among the bidders.
Crude Oil Prices Seen Falling To $70 by 2015; Nuclear To Surge
According to the Energy Information Administration, prices for crude oil worldwide are expected to fall to about $70 per barrel by 2015, as high prices encourage more supplies, and even as robust energy demand grows by more than 50% as a result of higher economic and population growth in developing countries. In its 2008 international energy outlook, the EIA said the world in 2030 will use more nuclear power, more coal and more natural gas as governments and economies, struggling with record-high crude oil prices, take steps to wean their countries off of high-polluting, fossil fuels, which will raise carbon dioxide emissions 50 percent by 2030.
Mass. House Gives Final Approval to Energy Bill
The Massachusetts House of Representatives Thursday gave final approval to a major energy bill that changes restructuring rules and positions the state to ramp up energy alternatives. An Act Relative to Green Communities, S.B. 2768, already passed the Senate Tuesday and now goes to Governor Deval Patrick, who is expected to sign it. The legislation significantly increases utility energy efficiency programs, expands the state’s renewable portfolio standard, and allows utilities to own and operate small renewable energy projects, a reversal of restructuring rules that have kept them out of the generation business for a decade.
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Part 3 of a 3-part report on how to green your energy portfolio. |
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GREENING YOUR ENERGY PORTFOLIO – A SPECIAL REPORT, PART 3
This article is the third part of a three-part report. Please visit the archives of the newsletter to read the past articles.
If you are wondering how you can position yourself as responsible energy consumer to effectively respond to the challenges posed by a carbon constrained energy landscape, there are three basic steps that can guide your strategy: 1) Assessing your Carbon Footprint 2) Reducing your Carbon Footprint, and 3) Offsetting your remaining emissions. In last month’s newsletter, we discussed the process for measuring and assessing your carbon footprint, and described some important strategies. In this newsletter, we will explore the steps you can take to offset your remaining emissions. We begin with an overview of some common terms.
Renewable Energy Certificates
A Renewable Energy Certificate (REC) is the environmental property rights to 1 MWh of electricity produced by a renewable generator. The owner of RECs from a wind farm, solar panel, or other renewable generator can claim to be powered by renewable energy from that generator. Purchasing RECs helps to support renewable energy generators, and in some cases forces new renewable energy onto the electricity grid.
The main purchasers of RECs are electric companies that are required by state laws, known as Renewable Portfolio Standards (RPS), to buy a certain percentage of their electricity from renewable sources. For example, in Oregon, the electric companies are required to be 25% renewable by 2025. If an electric utility sold 100 MWh of electricity in 2025, it would need to buy 25 RECs.
Other purchasers are voluntary consumers, like businesses and households, who want to power their offices and homes with renewable energy. These purchasers look at their monthly or annual electricity bill and buy RECs to match their use and support an equivalent amount of renewable energy.
Carbon Offsets
Offsets are different than RECs: a carbon offset represents a reduction in the total amount of carbon dioxide in the atmosphere, usually expressed in tons or pounds of carbon dioxide. Individuals and businesses purchase carbon offsets to neutralize their impact on global warming. So if a business consumes electricity produced from fossil fuels, drives around a fleet of trucks, and heats their offices with natural gas, they can purchase carbon offsets to fund projects that remove an equivalent amount of carbon dioxide from the atmosphere. There are three main types of carbon offset projects:
Offsetting Your Remaining Emissions
Once you have measured and reduced your carbon footprint, you are able to begin the process of offsetting your remaining emissions, by the purchase of RECs, Carbon offsets, or a combination of both. A standard approach, and one that EnerNOC has employed in addressing its carbon emissions, is to purchase RECs that are equivalent to your energy usage, and to offset your remaining emissions, not directly related to energy usage, with carbon offsets.
As part of the process of offsetting your emissions, it is important to ensure that the RECS and/or offsets you purchase are certified. There are a large number of certification programs available, with Green-e being the most widely used and well known.
When the time comes to procure your RECs and carbon offsets, EnerNOC offers a wide array of procurement services to assist our customers. In particular, the EnerNOC Exchange™, our online reverse-auction platform, provides a very efficient way to discover the lowest possible price for green energy. With EnerNOC Exchange, customers can quickly discover the most competitive product offers, by allowing suppliers to compete with each other in a real-time and fast-paced reverse auction environment. Please contact your EnerNOC representative if you have any additional questions or would like to discuss EnerNOC Exchange and the RECs and Offset markets in more detail.
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Click on each chart to view the full page version. |
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RECENT MARKET TRENDS
Illinois Competitive Historical Rates
New England Competitive Historical Rates
Maryland Competitive Historical Rates
New York Zone J Competitive Historical Rates
Natural Gas Rates
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