While convenient and at times correct to explain the direction of electricity prices using the direction of natural gas prices, it is important to note that nuclear and coal electricity generation comprise approximately 90% of Illinois electricity generation capacity. Wind electricity capacity has also become a more significant resource in recent years. These different generation options are each being impacted by different price drivers but are also influencing each other. Nationally, coal generation has been under pressure due to low natural gas prices and a myriad of environmental concerns and regulations (see above story). It is estimated that by 2016 coal generation retirements could reach 50-60 Gigawatts of nameplate capacity out of a total of approximately 300 Gigawatts.
While these numbers can change and new technologies could allow for cheaper regulatory compliance, for now the market is focused on these retirements and the longer dated forward curves have been rising. Ironically, the last few years of low natural gas prices and decreased coal generation has led to lower levels of coal production and now stockpiles are at 7 year lows and Central Appalachian Coal prices have risen almost 20% since November 2013. This is at a time when coal generation should be displacing some natural gas generation.
There has also been discussion regarding the possible retirement of some of Exelon’s (ComEd) Illinois nuclear generating plants due to the low prices (2009-2013) received for the electricity from their baseload plants. Recently, Exelon has argued against a retroactive extension of the wind energy Production Tax Credit (PTC) which provides Wind Generators with a subsidy credit. Their argument is that the subsidy (approximately $23.00 per Mwh) allows wind generators to offer their power at negative prices and still be positive from a revenue standpoint. Wind electricity generation in Illinois has its greatest effect during the off-peak hours. Initially, wind power production contributed to increased negative off-peak prices, but these were most prevalent in 2008 and have been declining since then.
The tax credit has not yet been extended for 2014 (one possible explanation for the higher off-peak spot pricing seen this year) but it has been approved to be extended two years (retroactive to Jan 1, 2014) by the Senate Finance Committee and is awaiting approval from the full Senate.