Posted tagged ‘electricity generation’

To Divest or Not to Divest Electricity Generation

April 9, 2014

Whether or not New Hampshire’s largest electric utility should divest its generating facilities is a hot topic again. The NH Public Utilities Commission issued a preliminary report last week which concluded that it is in the economic interests of PSNH’s retail customers for the company to divest its generating assets. The report was less sanguine about the economic impacts on customers not purchasing electricity from PSNH, but that depends on how the stranded costs are allocated in any divestiture.

“Staff continues to believe that over the long term, PSNH’s default service rate will be substantially higher than market prices resulting in continued upward pressure on default service rates. Based on La Capra’s forecast of wholesale prices in New Hampshire and adjusted for retail, Staff’s rate analysis indicates that PSNH’s default service customers would be better off under a divestiture of the PSNH assets if the stranded costs were recovered from all customers. Customers who do not receive default service from PSNH, however, would see rate increases through the imposition of a stranded cost charge. While we recognize the volatility in today’s energy markets, the value of PSNH’s “hedge” will likely diminish over the long term and will continue to be at risk due to potential environmental legislation.”

There are also smart and well-meaning people in New Hampshire who argue that that PSNH’s generating assets provide a valuable ‘hedge” given the volatility of fuel (primarily natural gas) prices and the impending retirement of several regional electricity generating facilities. But the value of that hedge depends, in part, on the price paid for it. This winter’s cold snap and concomitant spike in natural gas prices are times when the PSNH hedge did provide some benefits. But even in those instances, the net electricity generated by PSNH was below what it was in the early and mid-2000s (the latest available data is for January of 2014 so this may change with February and March data). The figure below shows the capacity utilization of PSNH’s coal-fired generating units on a monthly basis during three separate time periods. Capacity factors are the ratio of net electricity actually generated to the total potential electricity that could be generated by a facility (for this analysis I used the average of winter and summer coal-fired capacity for each facility -Merrimack and Schiller stations – rather than the nameplate capacity).

Monthy capacity
The chart shows that from 2004 to 2009, PSNH’s coal-fired generating units were primarily ‘baseload” generators, operating at 60% of capacity or higher. I have previously written about how electricity gets sold into the regional market and which generators will provide that electricity (which determines their capacity utilization) so I won’t cover that again here. Baseload generating units typically operate 24 hours per day year-round baring maintenance outages. At the other end of the spectrum are peaking generators, which mainly operate when hourly electricity load demand is at its highest (think the hottest summer and coldest winter days). Intermediate (or cycling generating units) operate between base load and peaking generators, varying their output to adapt as demand for electricity changes over the course of the day and year. After 2009 the decline in natural gas prices along with higher generating costs, including environmental, associated with PSNH’s coal facilities have resulted in the price at which it can supply electricity to the regional grid being higher than many other generators. As long as their generating cost remain higher, except for times of peak demand, limited capacity by other generators, or when events like the spike in natural gas prices occur, PSNH’s coal-fired units will produce little electricity for sale to the regional grid. During 2013 alone, there were six months when the coal units operated at less than 10% of capacity. PSNH’s coal-fired units have gone from baseload, to intermediate generators and as the chart below shows, when averaged over 12 months, they are looking a lot more like peaking units. Whether this pattern will continue is the heart of the debate over whether PSNH should be required to divest its generating assets.
Annualized generation
It becomes a lot harder to amortize the costs of generating units as their capacity utilization is lowered. There may be times when the hedge provided by PSNH’s generating assets provides a benefit and that would be truer if the units were baseload generators. But even with the extremes of this winter’s cold, price spike in natural gas, and high demand for electricity, the chart above shows, over the course of a year, the facilities have moved from baseload generators, to intermediate, and are trending toward peaking units. The NH Public Utilities Commission, its consultants, and a lot of other knowledgeable people think that, despite current market conditions and the uncertainties surrounding regional generating capacity and natural gas supply and price, these trends will continue.

Natural Gas Production is a Game Changer

November 19, 2012

The rise in natural gas production in the U.S., along with the volume of proved reserves available in the future because of new technologies, could fundamentally change the energy landscape in the U.S. in a way that the significant and beneficial rise in U.S. oil production can not.  Both trends are good news for the country and  further efforts toward U.S. energy independence, but the lower prices and increased stability in supply of natural gas also have the potential to alter the energy fuel mix  in this country.  The use of natural gas has yet to make significant inroads in the transportation sector but it is hard to imagine how a fuel supply that (unlike gasoline) is, or could be, available directly at a majority of U.S. households at reasonable prices,  will not eventually fuel a much higher percentage of vehicles in this country.  In the electric power industry, the transition to natural gas is already occurring, in part because of the lower and more stable price environment for natural gas, but also because of the environmental advantages of natural gas.

The chart above shows that the price of natural gas used by the electric power industry for generation has fallen by almost 60 percent since 2005.  Although that trend will not continue, production and proved reserves in the U.S. have created a much more predictable and stable price environment for natural gas as evidenced by forecasts by the U.S. Energy Information Agency and by commodity futures markets.  The electric power industry is already changing to reflect the new realities of natural gas markets.  As the chart below shows, in just the past decade electricity generated using natural gas has gone from 15 percent of the electricity generated by coal fired power plants to 31 percent.

That trend is continuing.  Just one company (First Energy), recently announced the closing of six coal fired power plants in Ohio, Michigan, Pennsylvania, and Maryland, noting that the costs of environmental compliance upgrades made the plants not economically viable to continue to operate.

Renewable Energy in the Era of Rising U.S. Oil and Gas Production

November 7, 2012

Dramatic increases in natural gas and oil production in the U.S. have increased the nation’s prospects for energy independence.  Increases in oil and gas production are good news for the U.S. economy and consumers, but one unfortunate result could be reduced efforts to increase the nation’s production of energy from renewable sources.   High oil and gas prices, as painful and harmful economically as they are,  spur development of renewable sources of energy.  I couldn’t be more enthusiastic about the positive implications of increased domestic oil and gas production but my enthusiasm is tempered by the prospect of a stalling emphasis on developing  renewable energy sources.   Northern New England states are above the U.S. average for electricity generated by renewables, with Maine being a national leader at 56% of it electricity generation.  Vermont is at 25% and NH 14% (each of these states generates a large percentage of electricity from nuclear fuel while Maine does not).

Southern New England states lag in electricity generated from renewable sources of energy, and as the chart below shows, have a long way to go in meeting their goals for the percent of electricity generated by renewable resources – even when the goals are modest.

%d bloggers like this: