Energy Markets Update
Weekly natural gas inventories
The U.S. Energy Information Administration reported last week that natural gas in storage decreased by 179 Bcf. The five-year average withdrawal for December is about 158 Bcf. Total U.S. natural gas in storage stood at 3,016 Bcf last week, 6.2% less than last year and 2.4% higher than the five-year average.
NYISO’s capacity proposal would bolster renewable power sector
On January 5th, the NYISO proposed that renewable energies be exempt from buyer-side mitigation rules otherwise known as BSM. The rules institute a price floor for any new resource in “mitigated capacity zones” which include areas such as New York City, Dunwoodle, and Hudson Valley. The regulations were designed to combat market price suppression in the areas.
The NYSIO, however, believes the BSM largely hampers the entrance of renewable energy sources, which could materially impair New York’s plan to push the power grid to 70% renewable by 2030 and 100% zero-carbon by 2040. Similar rule changes have been more contentious is other RTOs which are not necessarily beholden to the regulatory objectives of a single state. The proposal, now in front of FERC with 82% approval from the NYISO stakeholders, proposes that any solar, wind, geothermal, storage, and hydroelectric facilities be exempt from the BSM rules. This would likely result in higher participation of these resources in NYISO capacity markets, and more bullish cash flow prospects overall. The drafted rules would take effect March 6th.
Also last week, New York Gov. Kathy Hochul announced plans to double the state’s energy storage targets, from 3 GW to 6 GW by 2030. The stated need was identified by the New York Power Grid Study and more recently a draft report by the state Climate Action Council. This will require an enormous efforts as the state has less than 250 MW stalled currently and will be stretched to meet its previous interim goal of 1.5 GW by 2025. As currently laid out, it’s unclear whether the announcement amounts to anything beyond words.
Pennsylvania moves closer to joining RGGI
Governor Tom Wolf of Pennsylvania took action on Monday to keep Pennsylvania in the process of joining the Regional Greenhouse Gas Initiative, the preeminent carbon cap and trade program in the Northeast. The state’s legislature had previously voted against the Pennsylvania Environmental Quality Board’s regulations to allow the state to join the group.
Even with the legislature sided against him, Wolf successfully vetoed the pushback and released a statement, saying joining the initiative is a “progressive approach” with “significant positive environmental impact”.
The Senate would have to pass a two thirds majority as well as get the same majority in the house if they wished to override the veto.
New England power prices
New England wholesale power prices have averaged $150/MWh over the past week as the region faces its first real bout of cold weather. With temperatures hovering well below 20° F on Tuesday, prices for electricity and gas soared to heights not seen since January 2018. Tuesday’s prices reached $186 per megawatt hour, a 73% increase compared to last-year’s average price of $50.89.
Gas is used for both heating homes and businesses along with supplying much of the region's electricity. Winter price volatility is a repeating and expected reality of the New England market when inclement weather sets in. However, what is notable about recent price trends is that regional spot gas and power prices have remained strong, despite the relative warmups from day to day, an indication that a more sustained price separation may be embedding itself between the New England and New York / South markets. Forward markets have begun to stage higher accordingly.
Forward prices at the national level also rallied yesterday. NYMEX gas reached a six week high with the February futures contract closing up over 14%. As of publication, it is back down about 8%. All things considered, this is a highly reactive market at the moment and buyers should expect continued volatility.
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