Blog

4 Big Things to Watch in 2018

Posted December 6, 2017 | By Direct Energy Business

Share:

Each December, we sit down with Direct Energy Business President John Schultz to get his take on the year’s most noteworthy electricity, natural gas and energy policy changes.

From natural gas prices - to how proposed energy policy changes might impact the industry in the months and year’s ahead – here’s Mr. Schutlz’s take on 2017 and what we might expect in 2018.  

(Full transcript available below)

 

1. Last year you discussed the significance of the US becoming a net exporter of natural gas in 2017 for the first time.

Did that happen, and what impact do you think that may have on prices for consumers?

The United States did in fact become a net exporter this year. While the year isn’t over, we can see that imports from Canada are slightly down, exports to Mexico are up and LNG exports are up quite a bit. The balance between all of that activity is that the U.S. net exported somewhere around 1 billion cubic feet of gas every day. That trend is going to continue and I think we could see that double or triple next year and continue to rise after that.

The impact on prices this past year was fairly muted.

We have seen natural gas range bound between $2.50-$3.50 for most of the year. Overall, the U.S.  has an enormous resource of natural gas, so price rises from export demand should be limited to short periods of time until either production or infrastructure catches up, but the gas is there.

 

2. How will the recent Department of Energy Notice of Proposed Rulemaking on full cost recovery for coal and nuclear plants impact consumers?

First, what is it. The Department of Energy issued what is called a Notice of Proposed Rulemaking to the Federal Energy Regulatory Commission to provide for full cost recovery for coal and nuclear units, that in the eyes of DOE, are needed for grid resiliency.

Resiliency is a relatively new concept in the power industry, as we previously have been focused on reliability. It’s difficult to really pinpoint the difference between the two but as best I can tell resiliency seems to be more focused on the fuel source than the generating unit itself.

The concern being is something happens on the gas pipeline network that would disrupt fuel supply.

From my stand point the NOPR is poor policy and based on a dubious set of facts. Almost every RTO in the U.S. will tell you that there is adequate generating capacity available from a diverse set of fuel resources and that the power grid is as reliable or more reliable from a generation standpoint than it has been in a long time. Most utility or system operators would tell you that cyberthreats or attacks to critical transmission infrastructure are a bigger threat than not having enough generation. 

So besides addressing the wrong problem, let’s look at the cost to consumers. Projections from independent market monitors and consultants have ranged from $3 to $13 billion annually in incremental costs to businesses and homeowners. That alone should cause most people to pay attention. Further, those same reports estimate that 75% of the funds would flow to about five companies, like Exelon, NRG and First Energy. So, we have a policy mandate that would cost billions of dollars, benefit a handful of companies and is meant to solve something that isn’t really a problem. 

It is important to note that we are in the early stages here and there is still a lot we don’t know. Over 700 different parties commented to FERC on this NOPR. The ball is currently sitting with FERC and they can choose to hold a technical conference to gather more data or they can issue a rule making based on the currently filed comments, but we do expect some response from FERC shortly. 

 

3. You have commented in the past that energy is cheap, but reliability is expensive. Can you put a finer point on that given the discussion we just had?

 Sure. The energy is cheap comment is relative, but I will try to illustrate. If you look at wholesale prices of electricity in the various power pools, the price per MWh is at the lowest point in the past several years. Whether you live in Boston, New York, Chicago or Houston prices are between $25.00 and $32.00 for a 24hr block of baseload power. That would generally be equal to about 1/3rd or less of the total bill.

When you look at the portion of the bill that businesses and consumers are paying that represents transmission charges and reliability or capacity payments to generators, that portion is rising and in some regions, is the highest it has been in many years. I think that gets compounded when you add the costs of subsides to out-of-market generation units.

So for most consumers, you really don’t need to be too concerned about the energy markets. Your real risk is the what are the state and federal regulators are going to do. You can look at markets like Ontario, where 75% of the end use bill is out of market payments to generators based on decisions made by regulators. That’s $1.2 billion CAD per month. We need to make sure the U.S. doesn’t go that way.

The good news is that there is something that can be done to limit your exposure. Most of these charges are allocated to consumers based on their peak load contribution, meaning what was your peak load at the time the system peak occurred. There are more options today for lowering that peak consumption moment than ever before. Savvy businesses are looking at distributed generation, batteries and curtailment options to significantly impact their bill. That is an area where I think Direct Energy excels and we are really helping to make a difference to businesses bottom line. 

 

4.  Do you see renewables continuing to be a bigger part of the generation stack? What are you seeing in terms of corporations participating in the renewables push?

 The short answer is yes. I think we have 30 states (red and blue) that currently have a renewable portfolio standard, which is the mechanism that dictates what percent of the electric supply must come from renewables. Some of the larger states like NY and CA have standards that require the renewable portion to be as high as 50% by 2030. So if you just look at the math of all these mandates then you know that renewable mix is going to continue to grow no matter what the Federal administration does.

On the corporate side participation strategies vary usually with the size and sophistication of the business. Small businesses behave more like homeowners and are more likely to buy a bundled offer that contains some renewable mix embedded in it. They rely on the supplier to source that economically. As you get into bigger businesses you can see them looking at self-generation through solar panels on rooftops or parking garages. You may see some looking at battery solutions, energy efficiency initiatives or combined heat and power applications. They are looking to achieve on site resiliency and further corporate sustainability objectives. At the farthest end of the scale you have major corporations that are underwriting grid scale projects. Almost exclusively wind and power projects. They are entering into 15-20 year off take agreements with project developers. Google, Amazon, Apple, Facebook and Microsoft are the Big 5 in this space.

 

Keep up with all of the energy trends and changes that were brought about in 2017. Download our full report now.

2017  Year in Review

 

4 Big Things to Watch in 2018

what to expect 2018

Direct Energy Business President John Schultz sits down to discuss what noteworthy trends & policy updates to watch in the year ahead.

Watch the Interview Now

How will your energy bill fare this winter?

winter energy outlook

This five-question assessment shows where your business could be losing energy.

Evaluate My Business

Set your ZIP code and utility

Enter a valid ZIP code
Unfortunately, we don't currently service this area. Please try another ZIP code.

Loading please wait...

Don't see your utility?

We currently only provide service to the listed utilities. For question, please contact 1-888-925-9115.

Loading...

54.163.61.66