Transcript Duke Energy SB 221 Energy Efficiency Projects and Savings

How the Electric Energy
Landscape Has Changed Since
the Enactment of SB 221
Changes in the Marketplace and
Unforeseen Impacts of Implementation
Ohio Chamber of Commerce
October 18, 2013
Kevin Murray – Executive Director, IEU-Ohio
Energy and Economy Outlook
When SB 221 Was Passed
• In November 2007, the Chief Economist at the
International Monetary Fund forecast the world
economy would slow to a 4 ¾% growth rate in 2008.
• Strong demand, causing significant increases in the
costs of steel, concrete and other commodities.
• Commodity price increases expected to significantly
increase the cost of constructing new power plants.
• Thermal coal prices at record levels due to strong
global demand.
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Natural Gas Trends
• In 2008, most projections forecast the U.S. would not
be able to produce enough natural gas to keep up with
domestic demand.
• Imports, primarily in the form of liquefied natural gas
(“LNG”), would supply an increasing share of the
natural gas market.
• LNG is a globally-priced commodity.
• Natural gas is the marginal fuel for many hours of the
year in PJM Interconnection LLC’s (“PJM”) regional
electricity market.
• PJM serves all or parts of 13 states, including Ohio
and the District of Columbia.
• Little knowledge of domestic shale gas.
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Natural Gas Outlook 2008
• In its 2008 Annual Energy Outlook, the Energy Information
Administration (“EIA”) forecast that U.S. consumption of natural gas
would grow modestly to 23.8 trillion cubic feet (“Tcf”) by 2016.
• Growth in natural gas demand in the power generation sector offset
by declines in the residential and industrial sectors (price response).
• Reliance on imported LNG for approximately 25% of supply.
• A significant number of LNG import terminals were being pursued by
developers.
• The Federal Energy Regulatory Commission (“FERC”) and the
Coast Guard had approved LNG terminals or expansion projects
totaling an additional 17.81 billion cubic feet (“Bcf”) per day of
capacity.
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Annual Energy Outlook 2008
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Electricity Outlook 2008
• No new fossil fired or nuclear plants are
going to get built – they are too expensive.
• Electricity prices are high and will go even
higher.
• Energy conservation is necessary to meet
power demand and perhaps cheaper than
new power plants.
• Retail shopping for generation stagnant.
• Ohio utilities split between two regional
transmission organizations (“RTOs”).
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The Great Recession
World GDP
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Electricity Prices
• Fueled by the Great Recession of 2008,
demand for electricity, as well as other
fuels, fell dramatically.
• In response, prices dropped dramatically.
• The effects were global in nature.
• The effects continue, albeit to a lesser
extent, and also driven by other factors
today!
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The Shale Gale
• The development of shale gas has been
characterized as the most significant energy
innovation of this century.
• Shale gas accounted for only one percent of U.S.
natural gas supply in 2000.
• The EIA’s Annual Energy Outlook 2013 Early
Release projects U.S. natural gas production to
increase from 23.0 Tcf in 2011 to 33.1 Tcf in 2040, a
44% increase.
Almost all of this increase in
domestic natural gas production is due to projected
growth in shale gas production, which grows from
7.8 Tcf in 2011 to 16.7 Tcf in 2040.
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Shale Reserve Impacts
• The Potential Gas Committee issued its biennial
assessment of the nation’s gas resources in June 2009.
This study indicates that the U.S. possesses a resource
base of 1,836 Tcf of natural gas. When combining these
results with the Department of Energy’s (“DOE”) latest
determination of proved gas reserves, 238 Tcf as of
year-end 2007, the U.S. has a future supply of natural
gas of over 2,000 Tcf. At current consumption rates, this
is enough natural gas to supply the nation for the next
hundred years. Much of the increase in reserves from
prior estimates is largely attributable to increased
supplies from unconventional gas plays, specifically from
shale gas development.
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Natural Gas & Electricity
Interdependence
• As recently as two years ago, over 50% of the
nation’s electricity was generated by burning
coal.
• In April of 2012, low natural gas prices, caused
by a much warmer than normal 2011-2012
winter and record storage levels, resulted in
significant natural gas displacement of coal.
• Both natural gas and coal provided 32% of the
electricity generated in April 2012.
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Marcellus Shale
• In December 2011, monthly production in the
Marcellus Shale averaged 4.9 Bcf per day
with 75 rigs in the play directed at dry gas
production.
• In April 2013, monthly production in the
Marcellus Shale averaged 8.9 Bcf per day
with 69 rigs in the play directed at dry gas
production.
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Utica Shale
In mid-May, the State of Ohio released a report detailing Utica shale production data from 2012. As of the
end of 2012, there are a total of 87 wells in the Utica shale drilled by 11 companies. During 2012, the
wells produced a total of 12.8 Bcf of natural gas and so-called natural gas liquids and 635,896 barrels of
oil. During 2012, Ohio’s oil production grew by 93 percent and its natural gas production grew by 80
percent from 2011 levels.
Of the 87 Ohio wells, only two were in production for more than 300 days in 2012 and 74 were in
production for less than half a year, hurting Ohio’s production totals, officials said. The 87 wells were in
production for a total of 7,979 days in 2012, according to the report.
Utica shale wells represent two tenths of one percent of Ohio wells, yet those 87 wells produced 12
percent of Ohio’s oil and 16 percent of Ohio’s natural gas in 2012.
Rick Simmers, chief of the Division of Oil and Gas Resources Management said his agency estimates that
Ohio will have 1,012 drilled Utica wells producing oil and natural gas and natural gas liquids by 2015.
The state projects there will be 362 Utica shale wells in production by the end of 2013 and 662 Utica wells
in production by the end of 2014.
The projected volume of natural gas in 2015 is 146 Tcf in addition to 7.2 million barrels of oil and natural
gas liquids according to the Division of Oil and Gas Resources Management.
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7/1/2013
4/1/2013
1/1/2013
10/1/2012
7/1/2012
4/1/2012
1/1/2012
10/1/2011
7/1/2011
4/1/2011
1/1/2011
10/1/2010
7/1/2010
4/1/2010
1/1/2010
10/1/2009
7/1/2009
4/1/2009
1/1/2009
10/1/2008
7/1/2008
4/1/2008
1/1/2008
10/1/2007
7/1/2007
4/1/2007
1/1/2007
10/1/2006
7/1/2006
4/1/2006
1/1/2006
10/1/2005
7/1/2005
4/1/2005
1/1/2005
Average Monthly Real-Time
Locational Marginal Pricing (“LMP”)
AEP-Dayton Hub
$80.00
$70.00
$60.00
$50.00
$40.00
$30.00
$20.00
$10.00
$0.00
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$70.00
Average PJM West Hub
On-peak Futures Price ICE
$60.00
$50.00
$40.00
$30.00
$20.00
$10.00
$0.00
Reflects September 2, 2013 Settlement Data
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NYMEX Henry Hub
Natural Gas Futures
$5.00
$4.50
$4.00
$3.50
$3.00
$2.50
$2.00
$1.50
$1.00
$0.50
$0.00
Reflects NYMEX Settlement Price as of September 3, 2013
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Ohio Retail Electricity Prices
• Since 2008, Ohio retail electricity prices have dropped relative to
2008 levels in service areas in which the standard service offer
(“SSO”) generation prices are set through a competitive bidding
process (“CBP”).
• A CBP is used for FirstEnergy (Ohio Edison Company, The
Cleveland Electric Illuminating Company and Toledo Edison
Company) and Duke Energy Ohio.
• A Duke Energy Ohio residential customer using 1,000 kilowatt hours
(“kWh”) of electricity experienced a total monthly electric bill
decrease by approximately 17.5% at the beginning 2012 due to the
CBP.
• Presently, 62% of all customers shop for generation supply.
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Market-Based Capital Formation
• Since 2008, other market-based sources of capital have emerged to
fund energy efficiency projects and clean energy projects.
• Toledo-Lucas County Port Authority provides low cost financing for
energy efficiency measures through its BetterBuildings Northwest
Ohio program.
• Goldman Sachs has a $40 billion target for financing and investing
in clean energy and energy efficiency.
• Bloomberg New Energy Finance has indicated that Internet–based
“crowdfunding” options may help to raise more than $90 billion in
“clean energy” investment.
• The General Assembly has authorized local governments to
establish a revolving loan fund to help property owners finance,
among other things, alternative energy technologies, energy
efficiency and demand reduction through capital markets (Section
717.25, Revised Code, effective in June 2010).
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Conclusion
• The facts and circumstances that existed
in 2008, as well as the predictions for what
lay ahead, are dramatically different than
what has materialized.
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Questions?
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