ERCOT Market Update: May 2016 Market Dynamics and Energy Price - - PowerPoint PPT Presentation

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ERCOT Market Update: May 2016 Market Dynamics and Energy Price - - PowerPoint PPT Presentation

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ERCOT Market Update: May 2016 Market Dynamics and Energy Price Trends Andrew Elliott Director Supply & Portfolio Management GDF SUEZ Energy Resources NA GDF SUEZ Energy Resources NA will rebrand under the ENGIE name in 2016 ENGIE

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GDF SUEZ Energy Resources NA will rebrand under the ENGIE name in 2016

ERCOT Market Update: May 2016

Market Dynamics and Energy Price Trends

Andrew Elliott – Director Supply & Portfolio Management GDF SUEZ Energy Resources NA

1 ENGIE Privileged and Confidential

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Safe Harbor Announcement:

 Disclaimer. The views and opinions expressed herein are for informational purposes only. No

reliance may be placed on such information and GDF SUEZ makes no representation as to accuracy, completeness, suitability, or validity of any information therein. In no event shall GDF SUEZ or its directors, principals, agents, employees or representatives be liable for any loss or damage whatsoever arising out of the use of such information.

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ENGIE Privileged and Confidential

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00/00/2015 4

GDF SUEZ Energy Resources

GDF SUEZ Energy Resources NA is a licensed provider of retail electricity and related services to industrial and commercial customers in the United States

 One of the largest national energy providers, licensed to

serve 14 deregulated markets, with customers in TX, CT, DE, IL, NY, NJ, MA, MD, ME, PA, OH RI, NH & DC

 Ranked #3 by DNV GL in June 2015  Serves over 8,000 customers and over 60,000 accounts  Represent almost $4 billion in contract value  The first retail supplier to publicly guarantee on-time

enrollment

 Recognized by customers and energy partners as a

leader in quick problem resolution, execution on price quotes and on-time, accurate billing

 We also provide residential energy:

Complete Energy Management ™

Operational strength

Hassle-free services

Financial responsibility and historical stability Provides decision making tools

Informational leader A world leader in energy

Simplified products & services

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00/00/2015 5

Trusted Supplier to Over 50% of Fortune 100™, Including Oil & Gas Majors & Pipeline Companies.

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Electric Reliability Council of Texas (ERCOT)

Source: ERCOT and PUCT

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  • About 90% of Texas load
  • 24 million consumers
  • Competitive-choice customers: 75% of load
  • More than 7 million electric-service IDs

(premises)

  • More than 46,500 circuit miles of high-voltage

transmission

  • More than 550 generating units
  • More than 79,000 megawatts (MW) of expected

available generation capacity for summer peak demand

  • One megawatt of electricity can power about

200 Texas homes during periods of peak demand.

  • Record peak demand: 69,877 MW
  • Energy used in 2015: 347 billion kilowatt-hours

Up 2.2 percent compared to 2014

  • Market participants: More than 1,400 active

entities that generate, move, buy, sell or use wholesale electricity

ENGIE Privileged and Confidential

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Reserve Margin Forecasts (Excess Available Generation vs. Expected Peak Demand)

Hottest Summer in 106 Years

ERCOT Target Reserve Margin 13.75%

(ERCOT may revise the Target Reserve Margin upwards based

  • n wind availability calculations)

SARA Estimate

ERCOT Target Reserve Margin 13.75%

SARA (Summer ) Estimates:

  • 2012: 9.4%
  • 2013: 8.8%

SARA (Summer ) Estimates:

  • 2012: 9.4%
  • 2013: 8.8%

Hottest Summer in 106 Years

2014 Seasonal Assessment; Summer Forecast

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Sources: Electric Reliability Council of Texas (ERCOT), UBS & GDF SUEZ

ENGIE Privileged and Confidential

2014 2015 2016 2017 2018 2019 2020 2021 ERCOT, May 2016 CDR Forecast 18.2% 25.4% 23.2% 22.4% 21.6% ERCOT, Dec 2015 CDR Forecast 16.5% 20.7% 25.7% 22.9% 21.8% 21.1% UBS Estimates, Dec 2015 16.5% 22.7% 26.7% 23.8% 21.4% Summer Effective Reserve Margin 11.2% 13.8% 11.1% ERCOT Target Reserve Margin 13.75% 13.75% 13.75% 13.75% 13.75% 13.75% 13.75% 13.75%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0%

Reserve Margin % ERCOT Reserve Margin Estimates

  • 2017 reserve drop reflects

delay in 700 MW CC gas unit and 416 MW of Mothballed units

  • Does not include coal plant

retirements in the future due to Regional Haze and CPP

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Summer Peak Load History and Future Forecasts

ERCOT Target Reserve Margin 13.75%

SARA Estimate

SARA (Summer ) Estimates:

  • 2012: 9.4%
  • 2013: 8.8%

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Source: ERCOT Source: ERCOT and GDF SUEZ

60,214 62,339 62,130 62,171 63,400 65,776 68,379 66,548 67,245 66,427 69,783 70,588 71,416 72,277 73,663 74,288

56,000 58,000 60,000 62,000 64,000 66,000 68,000 70,000 72,000 74,000 76,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Summer Load

Actual Summer Load Forecast Summer Load

Recession

New Demand Record

Flat Demand Growth – Weather?

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Y on Y Actual Growth 2.92% 3.53%

  • 0.34%

0.07% 1.98% 3.75% 3.96%

  • 2.68%

1.05%

  • 1.22%

5.05% Y on Y Forecast Growth 1.15% 1.17% 1.21% 1.92% 0.85%

  • 4.00%
  • 3.00%
  • 2.00%
  • 1.00%

0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00%

Percentage Year on Year Load Growth

Y on Y Actual Growth Y on Y Forecast Growth

Hottest Summer in 106 Years 2% Load Growth from 2011

ENGIE Privileged and Confidential

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ERCOT and US Generation Capacity

Source: ERCOT

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ENGIE Privileged and Confidential

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Renewable Generation Growth: Wind and Solar

Source: ERCOT and PUCT

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  • Wind Output record 14,023 MW, Feb 18th 2016
  • 15,764 MW Total Installed
  • 3,000 MW planned by 2018

ENGIE Privileged and Confidential

  • Solar 288 MW
  • 1,000 MW installed by end of

2016?

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New Generation Fuel Types: ERCOT and US

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Source: AWEA U.S. Wind Industry Annual Market Report Year Ending 2015

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North Hub July-August (Summer) On–Peak Heat Rates

Heat Rate = Power Price / Natural Gas Price Power Price = Natural Gas Price X Heat Rate

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2012 2013 2014 2015

14 16 18 20 22 24 26

2016 - 2018 Summer Heat Rates

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Cal 2017: Natural Gas Price & Heat Rate; Houston Hub

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HR remain relatively steady, recent drop attributable to stabilizing/rising gas prices

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Cal 2017: Natural Gas Price & Heat Rate; North Hub

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HR remain relatively steady, recent drop attributable to stabilizing/rising gas prices

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Cal 2019: Natural Gas Price & Heat Rate; Houston Hub

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HR remain relatively steady, recent drop attributable to stabilizing/rising gas prices

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Cal 2019: Natural Gas Price & Heat Rate; North Hub

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HR remain relatively steady, recent drop attributable to stabilizing/rising gas prices

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Cal 2017: Natural Gas Price & Power Price; Houston Hub

Power and Natural Gas making a move off the lows, but still near 13-year lows

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Cal 2017: Natural Gas Price & Power Price; North Hub

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Power and Natural Gas making a move off the lows, but still near 13-year lows

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Cal 2019: Natural Gas Price & Power Price; Houston Hub

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ENGIE Privileged and Confidential

Power and Natural Gas making a move off the lows, but still near 13-year lows

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Cal 2019: Natural Gas Price & Power Price; North Hub

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Power and Natural Gas making a move off the lows, but still near 13-year lows

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Federal Environmental Regulations Summary

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Source: ERCOT & GDF SUEZ

Table 1: Environmental Regulations Impacting ERCOT Generation

Regulation Compliance Date Description Impacts Mercury and Air Toxics Standards April 2015 (April 2016 with extension) Sets limits on hazardous air pollutant emissions at power plants Owners of coal units without sufficient controls will need to retrofit to comply Cross-State Air Pollution Rule January 2015 Addresses cross-state air pollution through limits on annual nitrogen oxides (NOx) and sulfur dioxide (SO2) emissions, and ozone season (summer) NOx emissions Most fossil fuel-fired generators in ERCOT are subject to CSAPR; resource owners may need to purchase allowances to comply Regional Haze Three to five years after final Federal Plan was issued (2019 - 2021). Stay requests have been filed. Requires controls on air emissions to improve visibility in national parks Owners of certain coal units are required to retrofit with scrubbers,

  • r upgrade existing

scrubbers (3,000 – 8,000 MW) Clean Power Plan Stay by the Supreme Court will delay original implementation time frame: 2020-2029 (interim goal); 2030

  • nwards (final goal)

June 2, 2016 Court of Appeals review. Sets carbon dioxide emissions limits for existing units Rule has implications for most fossil-fuel fired generation in ERCOT, as well as for renewable energy and energy efficiency programs

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US Coal Plants Subject to Clean Power Plan Regulations

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Texas Coal Plants Subject to Environmental Regulations

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Martin Lake – 2,455 MW, Old Scrubbers Monticello – 1,955 MW, One Scrubber Big Brown – 1,200 MW, No Scrubber Total: 5,610 MW at Risk

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Texas Coal Plants: Short Term Generation Economics Look Bleak?

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ENGIE Privileged and Confidentiel

Assumes no forward hedges:

  • Most plants will have a portion of the output hedged through 2017
  • Monticello operates seasonally
  • Maybe not quite as bad as it looks but will coal units retire prior to environmental

regulation deadlines?

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Natural Gas Forward Prices; NYMEX Henry Hub

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ENGIE Privileged and Confidential $1.50 $1.75 $2.00 $2.25 $2.50 $2.75 $3.00 $3.25 $3.50 $3.75 $4.00 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Oct-17 Dec-17 Feb-18 Apr-18 Jun-18 Aug-18 Oct-18 Dec-18 Feb-19 Apr-19 Jun-19 Aug-19 Oct-19 Dec-19 Feb-20 Apr-20 Jun-20 Aug-20 Oct-20 Dec-20 $ MMBtu

Forward Monthly NYMEX Natural Gas Price

Current NYMEX Natural Gas Price February 4, 2016 March 29, 2016

Bal 2016: $2.48 Cal 2017: $3.00 Cal 2018: $3.03 Cal 2019: $3.04 Cal 2020: $3.11 Cal 2021: $3.25

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US Natural Gas Storage Level

Current Storage Level: 2,625 Bcf, 49% above last year and 48% above the five year average

  • This week’s report showed an injection 68 Bcf, 5-year average is 64 Bcf
  • Expectations for the upcoming week are an injection of 60 Bcf

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Natural Gas and Oil Rig Count Changes

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LNG Prices, Price Spreads and Export Quantities

Australia will have 8.0 Bcf/day deliverability in 2018

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Early Summer Forecasts: Trending Above Across the US

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June – August Forecast Farmers’ Almanac

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Bullish and Bearish Indicators

Bullish Indicators (Rising Prices)

  • ☼ * Clean Air Legislation in general provides upward

pressure on natural gas prices due to increased build and dependence on natural gas fired generation; retire or retrofit coal units, fracking restrictions; Obama CPP, Regional Haze Rule, Cross State Air Pollution Rule

  • ☼ Reduction in oil and gas CAPEX . Gas and oil rig

counts dropping

  • ☼ LNG exports – will enough LNG export facilities be

built to allow for significant exports (2018- 2019 effect?). Expecting 6 Bcf – 8 Bcf export demand.

  • * Regulatory Activities, PUCT and ERCOT - Revisions to

the Operating Reserve Demand Curve (ORDC). Ancillary Service changes. Effects of Protocol changes on prices?

  • ☼ * Summer weather – early forecasts calling for above

normal across the nation, except Texas?

  • ☼ Natural gas and power exports to Mexico – Mexico’s

privatization of the energy sector may increase US exports to Mexico; power (Frontera 520 MW), Texas Eastern gas export pipeline expansion 400 Mcf/d in 2017.

  • ☼ * LNG plant energy consumption – huge power users -

400 MW, some with onsite generation. 2018 - 2019

  • * ERCOT Reserve Margins expected to decrease yearly

with load growth and coal unit retirements/mothball. Some believe reserve margins are overstated 2018 – 2020.

  • ☼ Coal to Gas switching – generators using more gas

units to produce electricity due to price advantage vs. coal units

Bearish Indicators (Falling Prices)

  • ☼ Natural gas storage levels – gas storage will end at all

time highs ~2,400 Bcf. Gas from shale production continues to grow modestly. Artificial cap on prices…?

  • * Healthy reserve margins – outlook appears good through

2020? New generation investment…fuel types?

  • * Energy efficiency gains – are efficiency measures kicking

in? ..green buildings, commercial and industrial retrofitting, AC efficiencies, Energy Star homes

  • ☼ * Some summer weather forecasts are calling for a

potential cooler and wetter Texas. Will Gulf tropical activity dampen heat?

  • * Distributed generation/Renewables – continued wind

expansion, solar technology advancement, distributed generation initiatives and battery technology

  • ☼ * Increased role of Demand Response – will demand

response effectively reduce scarcity pricing/shortage concerns, 4 CP management

  • ☼ Japan restarting 3 nuclear facilities recently since

Fukushima

  • * Transmission upgrades and expansion may lower costs to

North , South and Houston.

  • ☼ * WILD CARD – Crude prices….. Demand destruction?

* Denotes potential impacts to heat rates ☼ Denotes potential impacts on natural gas prices

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Hotter < Summer Weather > Cooler

ENGIE Privileged and Confidential

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GDF SUEZ Energy Resources NA will rebrand under the ENGIE name in 2016

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Price Hub Locations for Power and Natural Gas

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US Shale Locations

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