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5 Key Energy Trends to Watch in the Year Ahead

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In 2015, there were a number of important developments in the energy industry, including record natural gas production and storage, advances in new technology and major regulatory announcements.

From our perspective as one of the largest retail energy suppliers in North America, here are five key energy industry trends we’ll be watching closely in 2016.

1. Natural gas continues to be cheap, abundant and accessible

The shale gas boom has been one of the most important economic developments in the United States this century. 2015 was a record year for natural gas production and storage, which directly led to the increased affordability of natural gas.

We ended the year with near record low prices for natural gas. In December, the front month NYMEX futures contract reached as low as $1.68 per million British thermal units (MMBtu) – a price that we haven’t seen since 1999.

A mild start to winter and record natural gas production – total marketed production hit 79.31 billion cubic feet (bcf) per day in November (including storage withdrawals) – helped create perfect conditions for these lows. We anticipate new records in U.S. gas production next year as the prolific Marcellus and Utica shale plays continue to show growth despite low prices and rig count reductions. New pipeline expansion projects are helping move gas out of this key supply region with more coming online next year.

While there will likely be some recovery in prices in 2016, natural gas should remain affordable, abundant and accessible, which is great news for consumers.

2. The U.S. will emerge as a global energy supplier

In addition to record natural gas production, the U.S posted near record crude oil production of 9.3 million barrels per day (MMBpd) in 2015. The previous record of 9.6 MMBpd was achieved in 1970.

The recently passed congressional budget bill contains language allowing for the export of U.S. oil to select nations. On the final day of 2015 – and for the first time in 40 years – a crude oil tanker slipped the moors in Corpus Christi, Texas loaded with U.S crude oil for export to Europe. Not far from there, Cheniere Energy is actively filling tanks at their Sabine Pass liquefied natural gas (LNG) terminal and expects to load the first-ever LNG cargo for export from the U.S. lower 48 states.

It’s hard to judge what the long term significance of these events will be or how much U.S. LNG and crude oil may ultimately be exported, but we will be watching this trend closely in 2016.

3. The U.S. power sector will become even cleaner

The U.S. power generation mix continues to shift toward more environmentally friendly sources and looks to become even cleaner in 2016. According to a recent Sierra Club analysis, annual carbon emissions produced by the U.S. power sector were projected to total 1,983 million metric tons (MMT) in 2015 – the lowest level since 1995.

Low natural gas prices and existing environmental regulations have placed significant pressure on the owners of coal-fired generation. Over 10,000 megawatts (MW) of coal fired generation were retired in 2015 and the U.S. Energy Information Administration (EIA) projects that between 2012-2020 about 60 gigawatts (GW) of total coal retirements will occur.

In 2015, we also saw the release of the final version of the EPA’s Clean Power Plan and 195 countries reach an unprecedented climate change agreement at the 21st session of the U.N. Framework Convention on Climate Change (UNFCCC)’s Conference of the Parties (COP21) in Paris.

The short-term impact of these agreements is likely minimal as the CPP compliance period doesn’t begin until 2022 and the Paris agreement still needs to be adopted by congressional and executive action. However, both agreements underscore the seemingly irreversible shift from coal generation to natural gas and renewables.

4. Solar continues to soar

U.S. total installed solar capacity topped 24.1 gigawatts (GW) in Q3 of 2015 – enough to power an impressive 5 million U.S. homes. Commercial installations and innovative partnerships have played an increasingly important role in expanding installed capacity.

One particular project – a groundbreaking partnership between grocer H-E-B, SolarCity, and Direct Energy Business – led to an innovative rooftop installation in Texas. The 1.2 megawatt installation — which is now one of the largest rooftop installations in the Lone Star State — includes more than 3,000 panels and covers 105,000 square feet. It serves about half of the H-E-B distribution center’s electricity demands while also providing significant energy savings and carbon emissions reductions. 

With the recent five-year extension of the incentive tax credit (ITC) for solar systems, solar installations are expected to continue to grow in 2016 and beyond. According to GTM Research, the ITC extension will help drive $130 billion in total investment, with about $40 billion of investment directly attributable to the passage of the extension. By GTM Research’s estimate, this policy extension will add 100 GW of cumulative solar capacity to existing generation by 2020.

5. Energy is cheap, reliability is expensive

Last year – in the age of cheap energy – grid reliability became more expensive for many customers.

PJM Interconnection – which manages the world’s largest wholesale electricity market, spanning 13 states and the District of Columbia – enacted major changes to its capacity market structure in response to the polar vortex of 2014 when 22 percent of the regional transmission organization’s generation resources were knocked offline.

While the changes were intended to ensure greater reliability during extreme weather events, the plan will undoubtedly have a negative economic impact on the region’s consumers and businesses as generators receive increased payments without having to change much of their operating behavior. According to a report produced by the American Public Power Association (APPA), PJM’s Capacity Performance model will cost consumers a staggering and additional $7.3 billion over the next three delivery years.

As more Independent System Operators look at similar changes to their own reliability payment structures, consumers should prepare for higher power bills in the future.

John Schultz is president of Direct Energy Business. In his role, he leads our North American commercial, industrial, and wholesale customer business. Follow him on Twitter @JohnSchultzDEB.  

Posted: January 27, 2016