Energy Markets Update
Weekly natural gas inventories
The U.S. Energy Information Administration reported last week that natural gas in storage increased by 83 Bcf. There was an injection for the same week last year of 86 Bcf while the five-year average injection is 79 Bcf. Total U.S. natural gas in storage stood at 3,006 Bcf last week, 16.5% less than last year and 7.1% lower than the five-year average for this time of year.
Analysis finds that utilities face greatest financial risk from climate threats
S&P Global’s Trucost released analysis last week, ranking climate-driven threats to the physical operations of around 15,000 public companies. The analysis found that utility companies face the highest combined physical risk from climate hazards compared to other industry sectors, with water stress being the primary driving factor.
Water, the primary resource for water utilities and hydropower generators, is also used in vast quantities for thermal cooling in power plants, and supply/demand imbalances that are intensified by drought present major risks for the sectors. Wildfires, hurricanes, flooding, and extended heatwaves are further contributing factors in Trucost’s findings. 2021 alone has seen global insured losses estimated at $40 billion from natural catastrophes. Near failure of the power grid in Texas in February, intense flooding in western Europe in July, and Hurricane Ida’s crippling impact on Louisiana utility are some of the major events this year to impact the global utility sector.
Compounding the issue is that extreme weather events are expected to become more frequent and intense as a result of rising temperatures, yet many businesses are not fully prepared to weather future physical and financial impacts. Consultancy ICF found in early 2021 that the US power sector alone faces a $500 billion “resilience investment” gap before it is properly protected against long term asset risks.
Despite the perceived gap in investment versus risk, S&P Global states that utilities’ investments to protect against future climate risk is at or near record levels. Power lines are being buried, insurance coverage shored up and management plans against drought and fires are being implemented. While this may be true, it can be a reasonable takeaway from the severe damage inflicted by this year’s weather events that significantly more investment needs to occur before US utilities are ready for future weather events.
Put succinctly by Christopher Schwalm, risk program director at the Woodwell Climate Research Center and quoted by S&P Global, “Physical climate risk really is everywhere. That hasn't quite achieved the level of resonance it ought to have in the broader corporate world.”
Reliability a key component of the coming energy transition
Increasing climate risk comes at a time in which the Biden administration is putting forward significant efforts to move the US down a path of sustainability. One of the primary goals set forwards is a 100% clean electricity grid by 2035 – an aggressive goal that will require a vast transformation of the US power grid.
As the grid transforms, away from centralized fossil fuel plants and towards distributed renewable generation, the US must also maintain reliability for its customers in an environment proving to be increasingly challenging. The future power system will require operational overhauls and land for new transmission and generation, all of which will come at significant cost. Time will tell how well this transition is achieved.
New York selects 2,550 in transmission to bolster renewable access to NYC
New York authorities have selected two major transmission projects, totaling 2,550 MW in capacity, to bring additional renewable resource generation to New York City. Both projects will contribute to the state’s clean energy goals, which seek 70% renewable energy by 2030 and 100% zero-emission energy by 2040. The projects selected are the Clean Path New York project the Champlain Hudson Power Express Project.
Clean Path New York is a 1,300 MW, 174-mile underground transmission line that will run from Delaware County in NY to Queens. Champlain Hudson Power Express is 1,250, 339-mile underground transmission line that will carry power from Hydro Quebec’s renewable assets, also to Queens. In combination, the projects will significantly boost New York City’s access to solar, wind and hydropower assets that are more difficult to access in the state’s current transmission schema. The New York ISO currently requires that the NYC zone procure a specific amount of generation from within the city itself – due to constraints with the city’s access to outside generation via transmission.
The projects still need to pass a rigorous approval process involving state agencies and the US Department of Environmental Conservation, but proponents of the projects see the selections as a step forward in New York’s efforts achieve a green grid.
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