Natural gas and power are cheaper in 2012 than they were in 2011, many coal plants are being retired but, with the possible exception of Texas and Southern California, most areas should have adequate electric reserve margins this summer.
That’s the bottom line from the Federal Energy Regulatory Commission (FERC) staff in its “Summer 2012 Energy Market and Reliability Assessment.” Staff officials presented the material in a May 17 briefing at FERC. The slides were subsequently posted on the FERC website.
Natural gas prices have dropped between 41% and 49% between 2011 and 2012, according to July–August forward prices on the New York Mercantile Exchange (NYMEX).
“Robust supplies of natural gas have led to the lowest sustained natural gas prices since 2001,” the FERC staff reported. This market trend is expected to continue to place pressure toward generally lower electricity market prices.
“We expect the ongoing substitution of natural gas-fired generation for coal-fired generation to continue as a result of these low gas prices. When the cost of natural gas dropped below $4 per MMBtu, combined cycle units started competing on price with coal-fired steam units using Central Appalachian coal,” according to the staff report.
Meanwhile electric power prices have decreased anywhere from 18% to 37% in various regions of the nation, FERC said. That is based on forward prices for this summer as of May 1 with electricity forwards from last year.
Without Southern California Edison’s (SCE) San Onofre nuclear plant, the Southern California region and particularly the San Diego area could see very low reserve margins, according to the report. SCE is a subsidiary of Edison International (NYSE: EIX). The company and the Nuclear Regulatory Commission (NRC) have yet to file a repair plan and schedule for the company to resume operation of the plant.
The extended plant outage will also limit transfers into the San Diego area from the Los Angeles basin. Two mothballed units at Huntington Beach have been reactivated, and will provide additional capacity in the Los Angeles basin and support additional transfers into San Diego.
Texas is looking at another year with low reserves, while capacity appears adequate in the rest of the country. “The generation supply in Texas may be strained if the state experiences another hot summer like last year,” according to the report. “In Texas, ERCOT is forecasting a reserve margin of 13.3%, which is below its reserve margin target of 13.75%. For California, WECC is forecasting a reserve margin of 15.2%, slightly above the reserve margin target of 15.1%.”
According to NERC and ERCOT, the low reserve margins in Texas are due largely to load growth outpacing generation development. “While drought remains a concern in Texas, ERCOT projects that winter precipitation was sufficient to maintain reservoir levels and provide sufficient cooling water through the summer months,” the report goes on to state.
Natural gas has driven electricity prices lower and more coal-to-gas switching is anticipated. Grid coordinators are working to try and minimize the impact of retirements of coal plants and other generating units.
Looking ahead to the fall, FirstEnergy (NYSE: FE) has announced plans to retire generating units totaling about 3.4 GW in its service territory in northern Ohio and western Pennsylvania, according to the report.
Under normal weather and system conditions, New England’s electric power supplies are expected to be adequate this summer. However, reduced and uncertain supplies of Liquefied Natural Gas to fuel the Mystic Generating Station could result in an inadequate supply to the Greater Boston area during extremely high loading periods and multiple contingency conditions, FERC states in the report.
Nameplate wind generation increased about 3.4 GW, or about 9% from 2011, for a total nameplate capacity across the nation of about 40 GW. The average on-peak wind capacity for the 2012 summer is forecast to be 11% of nameplate capacity, according to the FERC report.