Rapid Power Management

Rapid Power Management is dedicated to educating our clients not only about the services we provide, but on any issues that may affect the energy market.

Category: Energy Buzz

Natural Gas Gluttony Causing one Major Producer to Reduce Drilling Operations

Chesapeake Energy Corporation (NYSE: CHK), the second largest producer of natural gas in the United States, is making vast changes in order to protect their shareholders. Natural gas prices have hit a ten year low causing Chesapeake to decrease drilling in the Barnett, Haynesville and Marcellus Shale Plays. The company is immediately curtailing gross gas production by up to .5 billion cubic feet (Bcf) per day. If prices remain low, the company is willing to increase the curtailment to 1 Bcf a day.

An abundance of shale gas plays (see above image) has led to a surplus in natural gas inventories. Coupled with the mild winter the US has seen, natural gas prices steadily declined. After Chesapeake’s announcement, the market closed up $0.182 to $2.525. Pundits still feel that to have a real impact, other producers such as Exxon, EnCana and Devon Energy will have to follow suit.

Please visit http://rapidpower.net/rpm-market-news to see a real time update on 12, 24 and 36 month natural gas futures prices.

EPA’s CSAPR Delayed

The EPA Cross State Air Pollution Rule finalized in July 2011 has been delayed pending further review. The US District Court of Appeals granted a request from several power generators who stated the January 1, 2012 implementation date was too soon.

The Federal Electric Regulatory Council (FERC) is also concerned with the impact that the rule would have in places like Texas and the New England States where demand is high.

The court is asking that oral arguments regarding this matter take place by April 2012.

As RPM clients, we will continue to keep you informed on this critical piece of legislation.

 

Previous Articles Regarding the CSAPR:

Enforcement of the Cross State Air Pollution Rule Nears

EPA’s Clean Air Act Amendment could cause energy prices to rise as early as 2012 

ERCOT News Release

ERCOT has released both the winter 2011/2012 assessment as well as their biannual assessment for the next 10 years. Risk is very low, according to CEO Trip Doggett, that peak demand will exceed the available resources this winter season. ERCOT will continue to monitor the situation. Beginning summer 2012 it may be a different story. Power reserves — the extra capacity used to avoid rotating outages — will likely fall below the minimim target as they have decreased by five percent.  This means we can expect emergency procedures and potential outages.

Click to read more on the Winter 2011/2012 Assessment.

Solar Power: Time to Shine?

Renewable energy sources such as Solar power have become an increasingly popular energy resource over the years thanks to decreasing prices and increased awareness via reduced production costs, green energy advocates, government incentives and panel manufacturers’ marketing efforts.

Although solar power is still approximately three times more expensive than electricity produced by natural gas, prices have fallen by two thirds since 2008. To further solar power’s affordability, federal and state governments are offering tax breaks and subsidies.

The federal government offers a tax credit of 30 percent for the gross cost of solar panel installation for residents and businesses. On top of the tax credit, each state offers its own incentives for all forms of renewable energy, including solar.

The Department of Energy (DOE) rolled out the SunShot Initiative in 2007 to decrease solar energy system costs by 75% before 2020. When this goal is reached, systems will even be affordable without any rebates or tax cuts. The main goal has been to drive innovative technology.

Under the initiative, the DOE began backing the company 1366 Technologies this October with a $150-million loan. 1366 believes their new manufacturing process will significantly cut costs, making prices competitive with that of coal.

New thin-film photovoltaic cell technologies are also bringing down the costs and large companies like GE are beginning to manufacture the panels. In October GE announced plans to build the largest thin-film panel factory in the United States.

These initiatives are not only bringing down costs, they are creating jobs and with their implementation, protecting the environment.

Solar’s portion of the power business remains small but has great potential to flourish. According to the U.S. Energy Information Administration (EIA), solar power is capable of providing many times the total current energy demand.


U.S. Department of Energy (DOE) SunShot Initiative; http://www1.eere.energy.gov/solar/sunshot/

Information on state, local, utility and federal incentives and policies that promote renewable energy and energy efficiency: http://www.dsireusa.org/

Dallas Business Journal Interviews JD

Matt Joyce of the Dallas Business Journal interviewed one of RPM’s business partners, JD, at the TEPA conference. They spoke about the EPA’s “Cross State Air Pollution Rule” and the impact it could have on the electricity market in Texas. The article also highlights  challenges ERCOT may face to meet demand in the future.

Check out the article here.

EPA Partnership Opportunity

Team up with the Environmental Protection Agency by purchasing your electricity from retailers who provide clean, renewable resources such as wind or solar power. This Green Power Partnership will promote green power in order to reduce harmful environmental impacts. The minimum requirements to become a partner are as follows:

As a partner, your business name and ‘snapshot’ will be added to the EPA’s partner list on their website. In return, the EPA gives your company permission to use the Partner Mark logo on its site. Please note that this program is completely voluntary and does require an application and yearly profile update.

If “going green” is important to your company, this is a great way to promote it.  Through this program businesses receive expert advice, recognition and market updates.

Enforcement of the Cross State Air Pollution Rule Nears

The Cross State Air Pollution Rule (CSAPR) is approximately 3 months away from being enforced in 27 states. To meet the terms of this ruling, power companies are being forced to significantly reduce their sulfur dioxide and nitrogen oxide emissions by January 1, 2012 or shut down.

Finalized this July, CSPAR will mainly affect power producers who rely on coal to generate electricity. Those regions with heavy coal-based generation may see power prices raise as many plants are obligated to retrofit with new technology or shut down.
Projected decrease in emissions beginning this January

The EPA states, “This rule will not disrupt a reliable flow of affordable electricity for American consumers and businesses.” Additionally, the EPA explains that any increase in costs will be outweighed by the benefits of the ruling. (For more information on the EPA’s stance on the rule, please visit: http://www.epa.gov/crossstaterule/)

Several states, including Florida, Nebraska, Oklahoma and Kansas, beg to differ and have challenged the EPA over its decision. Attorney General Greg Abbot in Texas explained that the EPA is ignoring the increased potential for power outage risks and unemployment for coal miners and power plant employees.

RPM will continue monitoring any changes in the ruling.

Enforcement of the Cross State Air Pollution Rule Nears

The Environmental Protection Agency begins enforcing the Cross-State Air Pollution Rule January 1, 2012. To meet the terms of this ruling, power companies are being forced to significantly reduce their sulfur dioxide and nitrogen oxide emissions. One Dallas power company has made the decision to shut down two of its coal plants.

Energy Future Holdings (EFH) generation unit, Luminant, announced last Monday their plans to suspend generation in Monticello and Mt. Pleasant, Texas.

NRG Energy Inc. also made a decision to cease operation at three of their natural gas plants near Houston. The combination of EFH’s and NRG’s plants amount to more than 1,600 megawatts of electricity – enough to power 400,000 households at any one time.

Another proposed environmental regulation could begin affecting natural gas plants. According to ERCOT, the Clean Water Act requires cooling-water intake structures to minimize negative affects on fish populations. The proposed revision to the Clean Water Act requires closed-loop cooling tower systems to be installed at all existing
facilities that currently utilize once-through cooling.

The combination of the two rules could significantly affect generation in Texas. As you can see in the above chart, more than 75% of Texas’ electricity is generated by natural gas and coal plants. Approximately 36 plants would need to make a choice by 2016 on whether to stop producing electricity entirely or comply with the new rules.

 The top figure shows expected power plant retirement with the CSAPR enforced. The bottom figure shows potential retirement with the CSAPR and the Clean Air Act combined.

More operators could follow suit due to the high costs of retrofitting the plants with equipment to comply with these standards. With the decision to retire plants comes the realization that grid operators may have an increasingly difficult time meeting demand, especially when temperatures begin rising again.

Aside from new guidelines tightening the grid, the record-high electricity demand in August eliminated profits for several Texas retailers. This has forced many to purchase more insurance to protect against extreme swings in the wholesale market. Insurance costs would then be passed along to the customers, increasing retail rates.

With the combination of high insurance costs and limitations on production, customers might see increases in their electricity prices on any contracts moving forward. RPM will continue to monitor any changes in the ruling.

EPA’s Clean Air Act Amendment could cause energy prices to rise as early as 2012

Ruling Background

On Thursday, July 7, the Environmental Protection Agency finalized a decision which may have an immense impact on the power generation industry. This “Cross-State Air Pollution Rule,” an amendment to the Clean Air Act, gives the EPA authority to monitor green-house gas emissions from our nation’s power plants.

The Clean Air Act gave the EPA full responsibility more than 40 years ago to act if ever a new threat to health or the environment is discovered.

A previous amendment to the Clean Air Act, made in 1990, changed the generation industry significantly. It forced new coal plants to install strict emission control equipment, making approximately 88% of plants built since 1990 natural gas-fired.

The debate on whether the EPA should hold power to curtail green-house gas emissions has been contested for nearly a decade. This debate ultimately led to the Supreme Court ruling June 20, reinforcing the EPA’s responsibility on this issue. For further information regarding the ruling, please visit the following
link:
http://switchboard.nrdc.org/blogs/ddoniger/supreme_court_climate_decision.html

Coal Plant Impact

Coal plants produce roughly 4-trillion kilowatt hours annually and represent some of the cheapest electricity for the US. Nearly half of our nation’s electricity is produced via coal, making the amendment a significant factor in any future power generation.

Reducing pollution emissions means older plants will be forced to either shut down or retrofit with expensive scrubbing systems to comply with regulations. Given the depressed price of natural gas, it can be expected that most utility companies will opt to build natural gas-fueled power plants in the future.

Utility companies such as American Electric Power Co. and CPS Energy have already announced plans to close older coal-powered plants in favor of clean energy. This means a larger impact on Midwest power markets (i.e. PJM and MISO) which rely heavily on those older coal plants.

Some reasoning for tightening up the Clean Air Act and a list of potential savings can be found at: http://www.epa.gov/air/sect812/prospective2.html
Health Savings benefits are estimated to be $4 trillion by 2012 vs. the low
estimate cost of implementation ($65 billion).

Large Map of Cross-State Air Pollution Rule (CSPAR) States

http://www.epa.gov/airtransport/
The EPA’s new restrictions affect 27 states east of the Rocky Mountains (including Texas) beginning six months from now. Following the January 1 restrictions, a new set will be imposed May 1, forcing companies to comply – and quickly. The restrictions also establish new emissions trading programs for both SO2 and NOX.

The stakes are high and far-reaching for electric utilities, independent power producers, energy traders, natural gas and coal producers, large energy users and investors in stocks and bonds of the affected companies. As your energy advisor, we strive to keep you educated as these new rules are expected to alter future gas and electricity contracts. Already prepared for these effects, retailers have implemented added costs to deals currently being priced.

LNG Exportation

MARKET RISE – DOE Grants Authorization of Exportation of US Natural Gas

Prices jumped this week due to news that was released on May 20th announcing that the Department of Energy has granted Cheniere Energy (Ticker Symbol – LNG) approval to export domestically produced natural gas from the Sabine Pass LNG terminal as liquefied natural gas (LNG). Liquefied Natural Gas is a process whereby natural gas is liquefied temporarily to provide an economically feasible way to store and transport the commodity. There are currently 10 LNG facilities in the US and Puerto Rico (see map below), however this is the first such authorization to allow for exportation in over forty years. Currently there are two additional applications pending approval and more are expected to follow.

The US has about 4 trillion cubic feet of storage capacity and the authorization allows Cheniere Energy to export up to 803 billion cubic feet — 20% of the US’s current storage capability – per year from this single terminal in Sabine Pass to major LNG importers across the globe.  That amounts to more than 3 percent of U.S. gas consumption.

The US has steadily built up natural gas reserves since 2007, and currently has one of the largest proven reserves in the world. Industry experts believed that the reserves would keep the price of natural gas low in the future.  Accessing and exporting this supply of natural gas may threaten the domestic prices on natural gas as producers will take advantage of the high prices they can attain from the global markets of China, Japan and India.

Although Cheniere won’t have the ability to export till 2015, this does raise an extra concern to our client base on their long-term purchasing goals as supply could tighten and pressure prices to rise. Rapid Power Management will continue to monitor the situation and keep our clients updated.

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