Power prices remain cheap, while electric demand is relatively flat and natural gas has increasingly replaced coal as the top fuel for power plants, the Senate Committee on Energy and Natural Resources heard from witnesses Jan. 19.
Committee Chair Sen. Lisa Murkowski (R-Alaska) and Ranking Democrat Sen. Maria Cantwell (D-Wash.), convened the hearing to address the near-term outlook for energy and commodity markets.
In addition to Energy Information Administration (EIA) Administrator Adam Sieminski, the panel also heard from Capital Alpha Partners LLC Managing Director James P. Lucier, Jr., as well as Bloomberg New Energy Finance Head of Americas Ethan Zindler. The panel also heard from various witnesses who discussed commodity markets for oil and rare earth minerals.
In April 2015, natural gas-fired electricity generation surpassed that of coal-fired generation on a monthly basis for the first time in history, and it did so again in each of the months from July through at least October, the latest monthly data available, EIA’s Sieminski said.
Dry natural gas production in 2015 reached an estimated 74.5 billion cubic feet per day (Bcf/d), 5.6% higher than in 2014, the EIA official said.
Coal production in 2015 is estimated to have fallen below 900 million short tons (MMst), 11% lower than in 2014 and the lowest level since 1986, the EIA official said. Regionally, production from the Appalachian Basin experienced the largest percentage decline in production, he added.
Wholesale electricity prices at major trading hubs on a monthly average basis for on-peak hours were down 27%-37% across the nation in 2015 compared with 2014.
“Capacity factors, which measure actual generation as a percent of a potential maximum, averaged 57% for combined-cycle natural gas plants through October, Sieminski said in his written testimony. That’s well above the 49% average in each of the two previous January-October periods, he said.
Nuclear power plants performed well during 2015. Nuclear generation was the highest since 2010 (through October) as low levels of outages led to high capacity factors, Sieminski said.
Nuclear outages were less than 3% of capacity this summer and dropped to nearly zero during four days in August, the lowest levels on record, the EIA official added.
Among renewable sources, hydroelectricity continued to provide the most generation in 2015, accounting for 6% of the nation’s total generation through October, despite lower-than-normal water and snowpack levels in several regions with significant hydro resources.
Through October, generation from wind and solar plants provided 4% and 1%, respectively, of total generation. Net generation from distributed solar photovoltaic (PV) systems increased 28% and utility-scale solar PV generation increased 50% over the first 10 months of 2015 compared to the same period in 2014, Sieminski said.
EIA estimates that coal consumption decreased by 11% in 2015, mainly as a result of an 11% drop in electric power sector consumption. Higher forecast natural gas prices in 2016 and 2017 are expected to contribute to higher utilization rates among the remaining coal-fired power plants.
This higher utilization rate offsets the effect of lower consumption from coal-plant retirements. Coal consumption in the electric power sector is forecast to remain relatively unchanged in 2016, the EIA official said.
U.S. natural gas exports, by both pipeline and liquefied natural gas (LNG) tanker shipments, are expected to increase through 2017, the EIA official said.
Luicer cites ‘historically low’ power prices
Lucier of Capital Alpha Partners stressed that energy prices are currently unusually cheap and it should not be assumed that they will remain this low indefinitely.
“Inflation-adjusted retail power prices are at a historically low level, but also consistent with a historically stable range, showing that the system and the industry have generally served consumers well by maintaining low and stable prices over a considerable period of time,” Lucier said.
“Wholesale power prices are similarly at a ten-year low, which again shows service to consumers but also reflects low interest rates and low natural gas prices, which cannot be taken for granted, and possible design flaws in the markets that I believe may not be sustainable,” Lucier said.
“In the regulated utility space, corporate management faces a conundrum: how to maintain or increase earnings to satisfy shareholders at a time when power demand, after declining year on year for the first time in U.S. history after 2008, remains flat or nearly flat as far as the eye can see, which is to say well into the forecastable future,” Lucier said.
“Finally, as this committee knows so well, the demands of the EPA’s Clean Power Plan will drive the greatest investment cycle ever in the history of the U.S. power industry,” Lucier said.
On the infrastructure front, Lucier told Murkowski that natural gas pipeline development is a big concern in New England. Lucier believes that gas-dependent New England still remains rather vulnerable to heightened energy demands during a harsh winter.
Ethan Zindler of Bloomberg New Energy Finance said a lot of gas pipelines have been approved and should ease some of the “bottleneck” concerns.
Zindler also touted the expansion in renewable energy resources. United States clean energy investment totaled $56bn, the most in four years and the 2nd most ever, Zindler said.
Since 2007, the share of domestic power provided by renewables (including hydro), natural gas and nuclear has surged from 49% to 65% with wind, gas, and solar accounting for nearly all new capacity added.
“The achievements of the past year for clean energy came even as fossil fuel prices — most notably oil, but also gas and to a lesser extent coal — were falling,” Zindler said.