Transcript Arizona Electric Power Cooperative

Power Play:
Energy Market Developments
Tri-State Member Services Meeting
October 7, 2010
Eric H. Larson
VP - ACES Power Marketing
Topics
• Energy Demand
• Electricity Generation
• Power Prices
• Fuel Prices
• Regulation of Energy Price Hedging
• Natural Gas Supply Developments
• Environmental Issues
2
Energy Demand
• 2008 to 2009:
• Recession: 2009 electric energy output Down 3.7% vs. 2008
• Retail Sales of Electricity Down 6.5% July 2009 vs. July 2008
• 2009 to 2010:
• Retail Sales Up 9.5% July 2010 vs. July 2009 (mostly weather – hotter)
• Industrial Retail Sales Up 9.8% Over Same Period (maybe economy?)
160,000
150,000
Thousand MWh
140,000
130,000
120,000
Jul-09
110,000
Jul-10
100,000
90,000
80,000
70,000
60,000
Residential
Commercial
Industrial
3
“Electric Power Flash.” EIA. 20 Sept. 2010.
Electricity Generation
Figure 4.1 Trends in Total Net Generation (All Sectors): 2008, 2009, and 2010
430,000
Thousand MWh
410,000
390,000
370,000
350,000
330,000
310,000
290,000
270,000
JAN
FEB
MAR
APR
MAY
2008
AUG
JUL
JUN
2009
SEP
OCT
DEC
NOV
2010
“Electric Power Flash.” EIA. 20 Sept. 2010.
• Total generation up 9.2% July 2010
• Coal up 12.4%
• Natural Gas up 11.4%
4
Electricity Generation:
Fuel Sources
Generation Type
Jul-09
Jul-10
Coal
Natural Gas
Conventional Hydro
Nuclear
All Other
42.74%
27.29%
6.16%
19.60%
4.22%
43.97%
27.82%
5.91%
17.69%
4.61%
Fuel Type
Jul-10
Jul-09
Coal
Natural Gas
94 million tons
30 Bcf/day
85 million tons
26 Bcf/day
“Electric Power Flash.” EIA. 20 Sept. 2010.
5
Power Prices: Near-term History (“Spot”)
SP15
PJM
Ercot
Cinergy
$140
$120
$80
$60
$47.50
$40
$47.25
$32.50
$20
$31.28
ct
-0
9
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ov
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9
D
ec
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9
Ja
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Fe
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M
ar
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pr
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ay
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ug
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9
$0
Se
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$/MWh
$100
6
Power Prices: Forward Markets
SP15
PJM West
ERCOT NORTH
CIN HUB
$55
$53.81
$53.36
$50
$ / MWh
$50.78
$44.13
$45
$40
$35
$30
2010
2011
2012
2013
2014
7
Se
9
p1
0
-1
0
p0
M
ar
Se
8
-0
9
p0
$160
M
ar
Se
7
-0
8
p0
M
ar
Se
6
-0
7
p0
M
ar
Se
5
-0
6
p0
M
ar
Se
4
-0
5
p0
M
ar
Se
3
-0
4
p0
M
ar
Se
2
-0
3
p0
M
ar
Se
$ / barrel
Fuel Prices: Crude Oil Spot
$145
$140
$120
$100
$80
$76
$60
$40
$20
$0
8
ov
10
b1
M 1
ay
-1
Au 1
g1
N 1
ov
-1
Fe 1
b1
M 2
ay
Au 12
g1
N 2
ov
-1
Fe 2
b1
M 3
ay
Au 13
g1
N 3
ov
-1
Fe 3
bM 14
ay
-1
Au 4
g1
N 4
ov
-1
Fe 4
bM 15
ay
-1
Au 5
g1
N 5
ov
-1
5
Fe
N
$ / barrel
Fuel Prices: Crude Oil Forward
$91
$89
$89
$87
$85
$83
$81
$79
$77
$75
9
ov
-
7
n0
M 8
ar
-0
M 8
ay
-0
8
Ju
l-0
Se 8
p0
N 8
ov
-0
Ja 8
n0
M 9
ar
-0
M 9
ay
-0
9
Ju
l-0
Se 9
p09
N
ov
-0
Ja 9
n1
M 0
ar
-1
M 0
ay
-1
0
Ju
l-1
Se 0
p10
07
p0
Ja
N
Se
$ / ton
Fuel Prices: Coal Spot
$150
$145
$130
$110
$90
$63.83
$70
$50
$30
10
b12
-1
2
Au
g12
N
ov
-1
2
Fe
b13
M
ay
-1
3
Au
g13
N
ov
-1
Fe 3
b14
M
ay
-1
4
Au
g14
N
ov
-1
4
M
ay
Fe
1
11
g1
ov
-
Au
-1
1
M
ay
N
10
b11
ov
-
Fe
N
$ / ton
Fuel Prices: Coal Forward
$81.10
$80
$75
$70
$65
$60
11
U.S. Coal Stocks
Coal stocks are falling after rising in the shoulder months due to
increased cooling demand and coal production declines.
Figure 6.1 Trend in Coal Stocks (Electric Power Sector): 2008, 2009,
and 2010
210,000
200,000
Thousand Tons
190,000
180,000
170,000
160,000
150,000
140,000
130,000
120,000
JAN
FEB
MAR
APR
MAY
2008
“Electric Power Flash.” EIA. 20 Sept. 2010.
JUN
JUL
2009
AUG
SEP
OCT
NOV
DEC
2010
12
Fuel Prices: Natural Gas Spot
$18
$15.38
$16
$14
$ / mmBtu
$12
$10
$8
$6
$3.96
$4
$2
$0
S
-0
ep
2
3
0
03 r-04
04 r-05
05 r-06
06 r-07
07 r-08
08 r-09
09 r-10
-0
-1 13
r
p
p
p
p
p
p
p
p
a
a
a
a
a
a
a
a
M
M
M
M
M
M
M
M
Se
Se
Se
Se
Se
Se
Se
Se
Fuel Prices: Natural Gas Forward
$7.62
$7.50
$7.00
$ / mmBtu
$6.50
$5.93
$6.00
$5.50
$5.00
$4.50
$4.00
$3.50
2010
2011
2012
2013
2010
2014
2009
2015
2016
2017
14
Regulation of Energy Price Hedging:
Dodd-Frank is Not Just About Banks
•
•
•
•
•
•
•
Devil in the details (Rule Making underway)
Clearing forced, but with end user exemptions
Margining of transactions (put up $ during deal)
Reporting requirements increase
Transaction costs increase
Transparency of pricing probably improves
Banks need to separate proprietary commodity
trading
15
Natural Gas Supply: Storage
Bcf
3,500
3,000
2,500
2,000
2009
2010
5-Year Max 2005-09
5-Year Average 2005-09
5-Year Min 2005-09
1,500
1,000
500
J
F
M
A
M
J
J
A
S
O
N
D
Still near the high end of recent inventory ranges
“Weekly Natural Gas Storage Report.” EIA. 24 Sept. 2010.
16
Natural Gas Supply: Rigs
• Total Rig Count Up 35% From Beginning of 2010
• Horizontal Rigs Make Up 55.3% vs. 25% in Jan 2008
Horizontal Rig Count
% of Horizontal to Total
2,500
2,000
60.0%
50.0%
Rig Count
40.0%
1,500
30.0%
1,000
20.0%
500
9/
23
/0
1/ 5
23
/0
5/ 6
23
/0
9/ 6
23
/0
1/ 6
23
/0
5/ 7
23
/0
9/ 7
23
/0
1/ 7
23
/0
5/ 8
23
/0
9/ 8
23
/0
1/ 8
23
/0
5/ 9
23
/0
9/ 9
23
/0
1/ 9
23
/1
5/ 0
23
/1
0
0
“Current and historical data.” Baker Hughes. 24 Sept. 2010.
% of Horizontal
Total Rig Count
10.0%
0.0%
17
Natural Gas Supply: LNG Imports
Liquefied Natural Gas = Foreign Gas Imports
3.5
3
Bcf/Day
2.5
2
1.5
1
0.5
0
Ju
n-0
6
Oc
F
Ju
Oc
F
Ju
Oc
F
Ju
Oc
F
Ju
n-0
n-0
n-0
n-1
t-0 eb-0
t-0 eb-0
t-0 eb-0
t-0 eb-1
7
8
9
0
7
8
9
0
6
7
8
9
“U.S. Natural Gas Imports.” EIA. 30 Aug. 2010.
18
Natural Gas Supply: Shale
19
Shale
20
Natural Gas Supply: New Locations
21
Environmental Issues:
New Climate Change Legislation (?)
22
Environmental Issues:
Re-Regulation of Existing Generation
23
Environmental Issues: Tailoring Rule
EPA released Tailoring Rule on May 13
– “Carbon” or Green House Gases (GHGs) will
be regulated from generators based on the
Clean Air Act
– Generators will be required to Use Best
Available Control Technology (“BACT” definition to-be-done)
24
Environmental Issues: Transport Rule
EPA released a proposed Transport Rule to replace
CAIR on July 6 for comment period
– Would require 31 Eastern States and D.C. to Cut Power
Plant Emissions of SO2 and NOx
– Faster and larger cuts in SO2 and NOx than under CAIR
– Rule in 2011, with reductions to take effect in 2012
– Impacts trading of Emissions Allowances
• Year ago:
SO2 = $70 NOx = $1000
• CAIR rule challenge: SO2 = $3 NOx = $250
• New rule would limit allowance trading
25
Environmental Issues:
•
Bottom Line for Coal
Tailoring Rule:
Coal generation higher capital costs for “BACT”
•
Ash:
Hazardous waste (?) regulation could be expensive
•
Mercury:
Rule expected in 2010 or 2011 to force most efficient
technology for removal
•
Transport Rule:
Many smaller and older coal plants could retire to avoid
uneconomic retrofits (some estimates near 50GW)
26
Environmental Issues:
Bottom Line for Natural Gas
27
Environmental Issues:
Bottom Line for Natural Gas
28
Environmental Issues:
Renewable Portfolio Standards
• 29 states with standards, 7 states with goals
• In-state and regional generation requirements
• State rule change and ambiguity
– California at 33% by 2020 (Legislature votes “no” but
CARB adopts 9/23 ??)
– Delaware muni and co-op exemption changed
– Missouri 15% by 2021 (sourcing out of state?)
– Mass considering GHG limit on biomass
– New Jersey special offshore wind provisions
• National RES: Bingaman-Brownback introduce another
“bipartisan” Senate bill September 21 for 15% standard
by 2021. Graham bill 20% including clean coal, nuclear.
29
EPA/Legislative update
30
Market Summary
•
•
•
•
•
•
•
Electric demand rebounded somewhat this summer
Coal and gas generation use up this year so far
Power prices and volatility are lower
Fuel prices driving power are lower although not oil
Financial Regulation will impact energy hedging
Natural Gas has entered a new era of “shale” supply
Environmental regulations continue to challenge coal
31