Energy Markets Update
In this newsletter, we cover the factors you need to know impacting US energy markets as well as ERCOT's successful summer, MISO and SPP's joint transmission projects, bankruptcy in residential solar markets and a new energy reporting ordinance in Massachusetts.
Table of Contents
Weekly Natural Gas Inventories
Source: EIA
Source: EIA
US Energy Market Update
A summary of recent news in wholesale power and gas markets, PJM capacity, and New England transmission rates.
- The September 2024 NYMEX gas contract expired last week at $1.93 per MMBtu, another sign of staggering weakness in the North American market balance. The same contract traded over $3 per MMbtu in June. However, today’s storage injection of just 13 bcf for the week ending August 30 was well below the 28 bcf average analyst forecast. Markets are currently up on the news.
- More broadly, power and gas markets traded lower in August as temperatures moderated and buyers remained on the sidelines. Average wholesale power rates in the Northeast settled down 17-24% in the spot market for August as compared to July. Futures for CAL 2025-2026 were also down 5% in New England and 10-20% in PJM, on average. The sharper decline in PJM is a result of the record high capacity auction values that were published July 30 – higher capacity market revenues imply that generators will require smaller margins in the energy market, hence lower prices.
Source: ISO Data
- The PJM market is still reeling from record $270/MW-day auction price for the June 25 to May 26 capacity delivery period. According to Morgan Stanley, prices could hit $695/MW-day in the next auction. You can contact your energy advisor about options to mitigate this risk. This is one of the biggest stories in years given the rate impacts for consumers.
- One notable exception to falling energy prices in August was in ERCOT Texas where power prices averaged 50% higher than in July. Everything is bigger in Texas–the grid set a new all-time peak load of 85,931 MW on August 20th at 4:45 pm CT.
- September temperature forecasts look warmer than average, particularly for the Central Plains and Upper Midwest, likely a non-factor or slightly bearish influence on projected gas consumption.
- In New England, transmission operators are proposing a $30.92/kW-year increase to the Regional Network Service (RNS) transmission rate, increasing it to $185.28/kW-year, which is a 20% jump. The new rates would go into effect Jan 2025.
MISO and SPP Push Forward Joint Transmission Projects
In a significant development, the Midcontinent Independent System Operator (MISO) and the Southwest Power Pool (SPP) are making strides with a groundbreaking transmission initiative.
- This project, aimed at constructing $1.7 billion in transmission infrastructure along their shared northern border, seeks approval from the Federal Energy Regulatory Commission (FERC). The project could introduce up to 30 gigawatts (GW) of new generating capacity, marking a shift in regional energy dynamics.
- The initiative, named the Joint Targeted Interconnection Queue (JTIQ), is designed to address and streamline the massive backlog of interconnection requests that have plagued grid operators nationwide. FERC estimates that over 2,000 GW of generation capacity remains “stuck” in interconnection queues, whilst many regions face a shortage of capacity. With so many requests in queue, primarily from renewable energy sources like solar, wind, and storage, the need for a coordinated approach has never been more critical. The JTIQ aims to link the interconnection process with a forward-looking study, assessing long-term system needs across various clusters to achieve efficiencies unattainable through traditional methods.
- The JTIQ addresses a specific issue faced by generators proposed along RTO borders or “seams” which have historically been bogged down by disparate interconnection processes within each jurisdiction.
- The proposed projects under JTIQ have been selected through an extensive multi-year stakeholder engagement process. They are set to be financed by generation interconnection customers, supplemented by $464.5 million in potential funding from the Department of Energy’s Grid Resilience and Innovation Partnerships program. This funding, however, is dependent on FERC’s approval of the proposed tariff and joint operating agreement (JOA) amendments. SPP has underscored the importance of viewing these filings as a comprehensive package, suggesting that the tariff changes should be implemented concurrently with the JOA amendments on November 14.
- The successful implementation of the JTIQ could serve as a model for other grid operators dealing with similar challenges, potentially leading to more integrated and efficient national energy infrastructure.
ERCOT Overcomes Heat Wave and Sets New Demand Record
This summer, the Electric Reliability Council of Texas (ERCOT) showcased its enhanced grid reliability by successfully navigating extreme temperatures and setting a new peak demand record without the need for conservation requests.
- On August 20, 2024, ERCOT recorded a preliminary peak demand of 85,559 megawatts (MW), and the real time hourly price exceeded $3000. The average price for the day was $227.08 vs. an average monthly price of around $35.61. Renewable energy installations, particularly solar and wind, along with substantial increments in battery storage capacity played a crucial role in grid stability. According to grid officials, these additions have ensured a steady power supply, even during peak demand periods.
ERCOT Real Time Load vs. Real Time Price
Source: S&P
- Texas has increased its solar capacity from 12,000 MW in 2023 to 20,000 MW today, alongside adding thousands of megawatts in battery storage. These developments have mitigated the scarcity conditions typically associated with high-demand summer months. ERCOT's success in managing peak conditions this summer is further explained by new gas-fired generation projects, which have added a reliable backup to the predominantly renewable energy mix and more gas-fired projects are underway, backed by state-supported financial incentives. Following voter approval last year, developers are tapping into low-interest loans provided by the Texas Energy Fund to foster over 38,000 MW of potential new generation, indicating a robust pipeline for further enhancing grid reliability.
- Despite the overall success, there were some challenges, such as a transformer failure at an Austin Energy substation which led to a power outage affecting 6,400 customers. However, the quick response from utility crews ensured power restoration within three hours, demonstrating effective crisis management and resilience in grid operations.
- As ERCOT continues to evolve its resource mix and improve grid management practices, Texas remains at the forefront of integrating renewable energy at scale. This transition not only supports the state's energy demands but also contributes to broader understanding of how to enhance grid reliability in parallel with sustainability initiatives.
Bankruptcy in the Residential Solar Market
SunPower's bankruptcy is an example of the importance of strategic adaptability in a rapidly evolving industry. While some companies may falter, the overall trajectory of the solar industry remains toward growth and sustainability.
- SunPower, a major company in the U.S. solar industry, has recently filed for bankruptcy in Delaware, marking a significant moment in the solar sector's turbulent journey. SunPower's bankruptcy was not an overnight event but the culmination of years of financial and strategic missteps. The company, known for its innovative solar technologies, struggled with accounting issues, investor lawsuits, and breaches of critical credit agreements. Earlier this year, SunPower laid off 25% of its workforce and ceased support for new leases and power-purchase agreements—a clear indication of its declining financial health.
- SunPower's bankruptcy is not an isolated case but part of a broader trend affecting the solar industry. The sector, which experienced exponential growth over the past decade, has been hit hard in 2023 by rising interest rates, tighter financing conditions, and adverse policy shifts in key markets like California. The Federal Reserve’s aggressive interest rate hikes aimed at curbing inflation have made borrowing more expensive, directly impacting both consumer demand for solar installations and the financing available to solar companies. Plus, The introduction of Net Energy Metering (NEM) 3.0 in California, which dramatically reduced the financial returns for homeowners investing in rooftop solar, led to an 80% decrease in new installations. These challenges have led to over 100 solar company bankruptcies, with California being particularly affected.
Source: Solar Insure
- Despite these setbacks, the broader picture remains positive. The industry is still driven by technological advancements, increasing environmental awareness, and supportive government incentives. However, these recent bankruptcies highlight the need for companies to adapt to changing economic conditions and policy environments.
MA to Require Statewide Building Energy Disclosure Ordinance
On August 26, 2024 the Massachusetts Department of Energy Resources (MA DOER) released a draft of its proposed regulation to implement its Large Building Energy Reporting (LBER) policy.
- The 2022 “An Act Driving Clean Energy and Offshore Wind” created a requirement for buildings over 20,000 square feet (sqft) in MA to report their energy usage and cost data. The law went into effect on July 1, 2024 with the first usage reports due in 2025. This draft ordinance will give guidance on how covered buildings are to fulfill this requirement.
- All buildings greater than 20,000 sqft in MA are subject to this ordinance. A newly built or redeveloped building will be subject to the ordinance for the first full calendar year after a temporary or permanent Certificate of Occupancy is issued.
- Unlike Boston’s BERDO and Cambridge’s BEUDO ordinances, this draft puts much of the responsibility for reporting on electricity, natural gas, and steam utilities. Utilities are required to report usage and cost data they have insight into by June 30th of every year. Building owners are required to report any data not covered by the utilities’ reporting. This means that building owners will need to report any usage and cost from 3rd party supply for electricity or natural gas.
- Another main piece of the ordinance that sets it apart from BERDO and BEUDO is that building owners are not responsible for unresponsive tenants. This draft says that as long as a building owner contacts a tenant by April 30th and does not receive a response by June 25th of the year they need to report, the tenant will pay any fines incurred from a lack of reporting.
- There are exceptions to this ordinance such as buildings who have been vacant for the entire year or buildings who had naturally caused damage to the building that caused it to be vacant for more than 50% of the year.
- Similar to BERDO and BEUDO, this ordinance requires third party verification of data. Per this draft ordinance, it is required for the first reporting year and every five years thereafter. Veolia is able to provide this service and has done so for many customers to comply with BERDO and BEUDO.
- There is an upcoming public hearing on September 25th for public comment to the ordinance draft. Input can also be submitted through email to DOER.BER@mass.gov or by mail to Lyn Huckabee at the Department of Energy Resources, 100 Cambridge Street, 9th Floor, Boston, MA 02114.
- Veolia will provide updates as this ordinance evolves and is finalized.
Market Data
Market data disclaimer: Data provided in the "Market Data" section is for the newsletter recipient only, and should not be shared with outside parties.