Energy Markets Update
Weekly natural gas inventories
The U.S. Energy Information Administration reported last week that natural gas in storage decreased by 55 Bcf. There was a withdrawal for the same week last year of 78 Bcf while the five-year average withdrawl was 55 Bcf. Total U.S. natural gas in storage stood at 3,505 Bcf last week, 8.7% less than last year and 1.8% lower than the five-year average for this time of year.
ISO New England's Cold Weather Cautions
On Friday, ISO New England published a winter outlook summary, which acknowledges continued risk associated with prolonged cold weather events. While the operator is confident it will have the resources to meet consumer demand for electricity this winter, a severe prolonged cold snap would present risks of natural gas supply constraints in the region that could necessitate emergency actions.
The regional grid operator expects power demand will peak at 19,710 MW during average winter weather conditions of 10F, but if temperatures plunge below 5F, demand could jump to 20,329 MW. Peak projections from the 2021-2022 winter season assessment are about 2% lower than last year’s forecast, due in part to energy efficiency and behind the meter generation. New England’s all-time winter peak record was set during a January 2004 cold snap when electricity demand reached 22,818 MW.
The National Oceanic and Atmospheric Administration (NOAA) predicts a milder than average winter across most of the East and with a reasonably high probability in New England. This has put a damper on prices both regionally and nationally.
Source: NOAA
However, as Gordon van Welie, president and CEO of ISO-NE noted he is cautiously watching a few “variables that could put the region in a more precarious position than past winters” and the most important of them remains weather. Despite a warmer forecast, extended cold snaps are unpredictable and disruptive. New England is particularly prone to natural gas pipeline constraints when it experiences simultaneous demand for natural gas for heating homes and operating gas-fired power plants. Heating customers, who paid for the pipeline infrastructure, are prioritized and the remaining gas is available for electric plants. When pipeline gas isn’t available, or when the price of gas is very high, “the region uses other fuel sources, such as oil or liquefied natural gas,” van Welie said. Another concern raised by NE-ISO is that grid has changed at a rapid pace due to shifting patterns in energy use and a rapidly changing resource mix to meet increased clean energy targets set by states. Despite this, in the outlook, ISONE “would not expect emergency actions to be necessary.”
The legacy of New York's REV program
New York’s Reforming the Energy Vision (REV) is a set of multi-year regulatory proceedings and policy initiatives launched in New York state in 2014 with the goal of building a clean, resilient, and affordable energy system for all New Yorkers. REV is transformative and ongoing regulatory initiative that encompasses numerous policies and proceedings in the state of New York, as well as a restructuring of state utility ratemaking and revenue models.
REV successes
REV is a work in progress but it has already had some notable successes. Most important is probably the Value of Distributed Energy Resources (VDER) or the Value Stack established by the New York State Public Service Commission (PSC). This mechanism is designed to compensate energy created by distributed energy resources (DERs), like solar. The Value Stack compensates projects with invoice credits based on when and where they provide electricity to the grid. Categories of value include:
- Energy Value (LBMP)
- Capacity Value (ICAP)
- Environmental Value (E)
- Demand Reduction Value (DRV)
- Locational System Relief Value (LSRV)
Additionally, certain Community Distributed Generation (CDG) projects may have a Market Transition Credit (MTC) or Community Credit (CC). All of these elements combined recognize the benefits that DERs can provide to the grid and society, including avoided carbon emissions, cost savings to customers and utilities, and other savings from avoiding expensive capital investments. REV is a novel approach because it established a framework for a compensation that had previously existed, but only in theory. New York was the first state to work through the detail and make this concept reality.
Another REV success is the Non-wires alternatives (NWA - sometimes called non-wires solutions), which is another policy that targets the use of distributed energy resources (DERs) to defer utility transmission and distribution investments by managing load at specific points of the grid. Whereas the LSRV component of VDER (see above) provides a market signal customer-owned DERs to broadly interconnect in the right locations, NWA is a more targeted program to identify opportunities for the utilities to deploy NWA in their service territories in order to defer costs, decrease reliance on fossil fuels, and increase resiliency and reliability of the grid. One great example is ConEd's Brooklyn-Queens Demand Management (BQDM) program, which deployed distributed storage and demand management solutions to defer the need for a $1.2 billion substation upgrade.
Remaining challenges
However, there are also components of REV that have failed to materialized, at least as of yet. Most notable is the absence of Distributed System Platform (DSP) which was intended to enable markets in which DER owners and large-scale generators could transact with power providers, facilitating the efficient use of storage, microgrids and demand-response. The program remains largely undefined, in part due to the controversy around whether the utility or a third party should provide the platform's three functions of system planning, operations, and eventually administration.
Proponents of REV have touted the potential to save residents of New York State between $1.4 and $2.1 billion per year. Its creators believe the new utility model will allow ratepayers to better manage their energy usage and reduce their energy bills. However, the costs of overhauling the current utility model could theoretically be passed down to consumers and the most important goals of the program, creating a two way grid to support DERs, is also the most challenging and costly.
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