Possible Themes in the Electricity Industry in 2017

           US - Energy News
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The election of Donald Trump has introduced widespread uncertainty in the energy markets as it remains to be determined what exactly his policies will be and what impact they may have. We will watch those developments closely.

Despite this uncertainty, we do feel that there are some prior trends in the electric and natural gas space that will continue in 2017, and some new things that may develop. We would like to highlight a few of them.

Natural Gas Demand Will Continue to Increase

While there is the possibility that coal-based electricity generation may get a boost from the Trump Administration’s energy policies, it must be stated that natural-gas-fired generation is much cheaper than it was formerly, not only because of the reasonably low price of natural gas but also due to the increasing efficiencies of the generation equipment. This is true not just here in the United States but also globally. It is important to remember that the efficiencies and flexibility of many natural-gas-fired electricity units also make them valuable electricity resources that can respond to the intermittent tendencies of renewable generation such as wind and solar-powered generation. Additionally, global demand is growing. This past month, British Petroleum released its Energy Outlook to 2035 and identified natural gas as the fastest growing fossil fuel, forecasting 1.8% annual growth until 2035.

Electricity Non-commodity and Distribution Costs Will Continue to Rise

Over the last few years, most electricity customers in deregulated states who use alternative energy suppliers have observed that non-commodity costs of electricity service have become a larger component of the customer’s total electricity spend. Unfortunately, this trend is likely to continue over the next few years.

Part of the problem is an aging grid and the requirement to upgrade it. Nationally, there has also been the problem of integrating Distributed Energy Resources (DERs) such as wind and solar. As customers have added these resources, they have reduced the volumes that are transmitted on the grid, thereby putting pressure on regulated utilities’ earnings. As stated above, there is also the additional costs of integrating electricity generating resources that are intermittent. One of the ways utilities have been approaching this issue is to request rate-based increases by increasing fixed charges and fees and reducing their reliance on volumetric fees. Unfortunately, this approach has a negative energy efficiency impact since, everything else being equal, a customer has less of an incentive to reduce their energy consumption. It has been reported that 44 utilities nationwide proposed fixed fee increases of 10% or more in 2016.

Energy Storage Continues to Grow As an Electricity Resource

The exponential declining price of battery energy storage is making the technology much more economically viable, and it could really change the electricity industry over the next decade. In late 2015, the Aliso Canyon methane leak shut down natural gas supplies to natural gas electricity generators in Los Angeles. The impacted incumbent utilities responded by contracting with Tesla and AES to build 20 MWs and 37.5 MWs of storage capacity, respectively, which showed the promise of the technology. The cost is still higher than natural gas peaking plants but is dropping quickly. Battery electricity storage solutions that could challenge natural gas combined cycle plants on costs would be a real game changer. In organized Regional Transmission Organizations (RTOs) like PJM, storage technologies in combination with solar projects are already widely used to provide grid services such as Frequency Regulation and being paid for it. While a discussion of the intricacies of the different battery technologies available is beyond the scope of this article, it is important to note that different battery technologies and battery types can provide different services. The aforementioned Frequency Regulation services can be provided by a short charge/discharge battery system while a longer charge/discharge battery system can provide opportunities for energy supply shifting. Battery technologies are also being used to provide transmission services such as congestion relief in certain parts of the grid. Probably most importantly, the combining of battery technologies with renewable power sources such as wind and solar are slowly allowing for real off-grid solutions that will inevitably put pressure on regulated utilities to adapt to a changing landscape.

Analyst – David Mousseau
Sources – PJM, Utility Dive, and the International Renewable Energy Agency (IRENA)

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