Workshop L 2020 Energy Market A Deep Dive into the Trends Shaping - - PDF document

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Workshop L 2020 Energy Market A Deep Dive into the Trends Shaping - - PDF document

Nov 02, 2023 27 likes •284 views

Workshop L 2020 Energy Market A Deep Dive into the Trends Shaping Energy Markets for the Decade Ahead Tuesday, February 18, 2020 1:45 p.m. to 3 p.m. Biographical Information Evan Howell Director, Market Analytics Practice AEP Energy

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Workshop L

2020 Energy Market … A Deep Dive into the Trends Shaping Energy Markets for the Decade Ahead

Tuesday, February 18, 2020 1:45 p.m. to 3 p.m.

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Biographical Information

Evan Howell Director, Market Analytics Practice AEP Energy 225 West Wacker Drive, Suite 600 Chicago, IL 60606 312-488-2211 ehowell@aepenergy.com Evan began his energy career with AEP Energy in 2012 as a Financial Analyst. As he progressed through the Finance organization, he built out KPIs, reports and analyses that helped drive the rapid growth of the retail residential business. Moving to business customers, Evan ran a small business sales team before moving into a leadership role in the C&I sales organization where he was responsible for sales initiatives and market

  • analytics. Most recently, Evan is a founding member of the management team of AEP

Energy’s newly formed Services group. Evan and his team are responsible for delivering insights to customers via deep knowledge and insight into energy markets and rates. Evan is a graduate of Middlebury College with a BA in Geography and he also received an MBA from the University of California, Davis Graduate School of Management.

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AEP Energy is a competitive retail electric service provider and a competitive retail natural gas service provider and an affiliate of Ohio Power Company (AEP Ohio). AEP Energy is not soliciting on behalf of and is not an agent of AEP Ohio.

2020 Energy Market A Deep Dive into the Trends Shaping Energy Markets for the Decade Ahead

Evan Howell

Director, Market Analytics Practice AEP Energy

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AEP Energy is a competitive retail electric service provider and a competitive retail natural gas service provider and an affiliate of Ohio Power Company (AEP Ohio). AEP Energy is not soliciting on behalf of and is not an agent of AEP Ohio.

Way Back in 2010…

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AEP Energy is a competitive retail electric service provider and a competitive retail natural gas service provider and an affiliate of Ohio Power Company (AEP Ohio). AEP Energy is not soliciting on behalf of and is not an agent of AEP Ohio.

Looking Toward 2030…

?

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AEP Energy is a competitive retail electric service provider and a competitive retail natural gas service provider and an affiliate of Ohio Power Company (AEP Ohio). AEP Energy is not soliciting on behalf of and is not an agent of AEP Ohio.

Topics

I. Last Decade – what happened

  • II. Emerging Market Developments

– PJM and Natural Gas – High Renewable Penetration

  • III. The Evolution of Energy, Capacity and

Transmission

– What happens when the next kWh is free… – Capacity and other costs in a high VRE world

  • IV. What to Watch

– Fundamentals & Technicals to monitor – Evolving participation in the retail market

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AEP Energy is a competitive retail electric service provider and a competitive retail natural gas service provider and an affiliate of Ohio Power Company (AEP Ohio). AEP Energy is not soliciting on behalf of and is not an agent of AEP Ohio.

So What Happened?

Source: EIA

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AEP Energy is a competitive retail electric service provider and a competitive retail natural gas service provider and an affiliate of Ohio Power Company (AEP Ohio). AEP Energy is not soliciting on behalf of and is not an agent of AEP Ohio.

So What Happened?

Source: S&P Global Markets

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AEP Energy is a competitive retail electric service provider and a competitive retail natural gas service provider and an affiliate of Ohio Power Company (AEP Ohio). AEP Energy is not soliciting on behalf of and is not an agent of AEP Ohio.

The Decade in PJM

50% 24% 17% 36%

Source: S&P Global Markets

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AEP Energy is a competitive retail electric service provider and a competitive retail natural gas service provider and an affiliate of Ohio Power Company (AEP Ohio). AEP Energy is not soliciting on behalf of and is not an agent of AEP Ohio.

The Decade in PJM

Monthly average LMPs have cleared below $30/MWh since February 2019

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AEP Energy is a competitive retail electric service provider and a competitive retail natural gas service provider and an affiliate of Ohio Power Company (AEP Ohio). AEP Energy is not soliciting on behalf of and is not an agent of AEP Ohio.

Big Picture Trends

  • California utility-scale

renewables share of load1

  • 2010: 1% solar, 4%

wind

  • 2018: 15% solar, 11%

wind

  • New England estimates

~8% of summer load served by behind-the-meter solar2

  • PJM has a generation glut,

spurred by continued natural gas build

  • Reserve margin

(excess capacity): 29% summer, 43% winter3

  • Coal fueled 50% of U.S.

generation in 2010, 24% in 20194

1: S&P Global Markets 2: New England ISO – iso-ne.com 3 PJM Summer and Winter Reliability Reports 4: EIA Annual Energy Report

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AEP Energy is a competitive retail electric service provider and a competitive retail natural gas service provider and an affiliate of Ohio Power Company (AEP Ohio). AEP Energy is not soliciting on behalf of and is not an agent of AEP Ohio.

Snapshot: ERCOT 2019

Source: S&P Global Markets

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AEP Energy is a competitive retail electric service provider and a competitive retail natural gas service provider and an affiliate of Ohio Power Company (AEP Ohio). AEP Energy is not soliciting on behalf of and is not an agent of AEP Ohio.

Snapshot: ERCOT Low LMPs

For 712 Hours (>8% of the year), LMPs at ERCOT West Hub were < $5/MWh

Source: S&P Global Markets

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AEP Energy is a competitive retail electric service provider and a competitive retail natural gas service provider and an affiliate of Ohio Power Company (AEP Ohio). AEP Energy is not soliciting on behalf of and is not an agent of AEP Ohio.

Low / Negative LMPs: Renewables

  • Price “Cannibalization”

– Correlation Risk:

  • Renewable Energy Resources all building in resource rich areas
  • Lower LMPs with over-abundance of low/zero cost renewables

– Merchant Risk:

  • After 10-20 year PPA concludes, Power producers left to find revenue in

LMPs

  • LMPs driven down due to Correlation Risk
  • Congestion

– Too much energy being produced in a single area and not enough “bandwidth” to get it out – Requires Transmission investment to relieve Congestion

  • CREZ – (Competitive Renewable Energy Zones) – Texas
  • Byron – Wayne line for Byron & Quad Cities – PJM
  • Over abundance of zero-cost resources in single area

– Having reasons to overproduce / curtail

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AEP Energy is a competitive retail electric service provider and a competitive retail natural gas service provider and an affiliate of Ohio Power Company (AEP Ohio). AEP Energy is not soliciting on behalf of and is not an agent of AEP Ohio.

Snapshot: SPP 2019

Source: S&P Global Markets

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AEP Energy is a competitive retail electric service provider and a competitive retail natural gas service provider and an affiliate of Ohio Power Company (AEP Ohio). AEP Energy is not soliciting on behalf of and is not an agent of AEP Ohio.

Snapshot: SPP Low LMPs

For 1,100 Hours (12% of the year), LMPs at SPP South Hub were < $5/MWh

Source: S&P Global Markets

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AEP Energy is a competitive retail electric service provider and a competitive retail natural gas service provider and an affiliate of Ohio Power Company (AEP Ohio). AEP Energy is not soliciting on behalf of and is not an agent of AEP Ohio.

Low / Negative LMPs: Market

  • Declining Energy Costs

– But with more spot volatility

  • Increasing Capacity Costs
  • Increasing Transmission Costs
  • Market Shift for “Energy Services”

– Ancillaries / Frequency Regulation / Grid Stabilization – Demand Response – Energy Efficiency

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AEP Energy is a competitive retail electric service provider and a competitive retail natural gas service provider and an affiliate of Ohio Power Company (AEP Ohio). AEP Energy is not soliciting on behalf of and is not an agent of AEP Ohio.

Transmission Investment

  • NREL: Renewable Electricity Futures Study

– 50% Renewable Penetration 40 Million MW-Miles ($3.5 Billion / Year) – 90% Renewable Penetration: 200 Million MW-Miles ($8.3 Billion / Year)

  • Brattles / WIRES: “Additional Transmission

Investment Need to Cost-Effectively Support Growth of Electrification in North America” – $30-90 Billion of incremental transmission by 2030 – $200-600 Billion of incremental transmission from 2030-2050

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AEP Energy is a competitive retail electric service provider and a competitive retail natural gas service provider and an affiliate of Ohio Power Company (AEP Ohio). AEP Energy is not soliciting on behalf of and is not an agent of AEP Ohio.

Energy vs. Other Cost Components

Energy Capacity Ancilary Services Transmission Generator Revenue Customer Bills

  • Cost drivers will evolve with costs

– Time of use, peaks and coincident peaks will become increasingly important – Monthly peaks vs. annual peak (Dominion Virginia change)

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AEP Energy is a competitive retail electric service provider and a competitive retail natural gas service provider and an affiliate of Ohio Power Company (AEP Ohio). AEP Energy is not soliciting on behalf of and is not an agent of AEP Ohio.

Energy vs. Capacity

Where does coal and natural gas fit into AEP's future portfolio mix? “I think you'll see the fossil-fuel units move to more of a peaking and backup type of

  • capacity. Because really, ... if you're focused on climate change, the carbon emissions are

based on output of the units from an energy perspective, not a capacity basis. There's no question that, at certain times of the year, the fossil generation fleet is what carries the

  • day. If the wind's not blowing, there's the need for these types of resources. They will be

there as more of an insurance policy. … That's probably a next-decade type of thing as opposed to something that you're dealing with in the near term.”

  • Nick Akins, AEP Chairman, President & CEO

S&P Global Markets

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AEP Energy is a competitive retail electric service provider and a competitive retail natural gas service provider and an affiliate of Ohio Power Company (AEP Ohio). AEP Energy is not soliciting on behalf of and is not an agent of AEP Ohio.

Thought Experiment: Future Energy Resources

  • Rocky Mountain Institute (RMI): “The Growing

Market For Clean Energy Portfolios”

– Today optimized Clean Energy Portfolios (CEP) are lower cost than 90% of new proposed 68 GW of gas-fired power plant capacity – Heavily relies on Demand Flexibility and Energy Efficiency

  • Ignoring these two wind, solar and storage are competitive with only 25% of

proposed gas plant capacity.

  • By 2030 wind, solar and storage will be cheaper than building new gas
  • May indicate a need for a market evaluation of demand and efficiency

– May not be this drastic but new NG plants may be carrying risk

  • Talk of NG becoming the “new coal”
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AEP Energy is a competitive retail electric service provider and a competitive retail natural gas service provider and an affiliate of Ohio Power Company (AEP Ohio). AEP Energy is not soliciting on behalf of and is not an agent of AEP Ohio.

What Does Volatility Look Like Now?

  • Real Time LMP Volatility in Winter / Early Spring (Dec – Mar)
  • Forward Market can see low prices in Summer months with lower

volatility in Fall

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AEP Energy is a competitive retail electric service provider and a competitive retail natural gas service provider and an affiliate of Ohio Power Company (AEP Ohio). AEP Energy is not soliciting on behalf of and is not an agent of AEP Ohio.

Using Indicators to Focus on Momentum Shifts

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AEP Energy is a competitive retail electric service provider and a competitive retail natural gas service provider and an affiliate of Ohio Power Company (AEP Ohio). AEP Energy is not soliciting on behalf of and is not an agent of AEP Ohio.

Using Indicators to Focus on Momentum Shifts

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AEP Energy is a competitive retail electric service provider and a competitive retail natural gas service provider and an affiliate of Ohio Power Company (AEP Ohio). AEP Energy is not soliciting on behalf of and is not an agent of AEP Ohio.

Fundamentals and Developments to Watch

  • Natural Gas production and export levels
  • Be wary of weather and storage reports in early winter
  • Renewable build-out in other markets
  • Total system load growth/reduction
  • Behind the meter generation and efficiency
  • Direct Corporate PPAs – market share and prices
  • PJM RPM/MOPR rules for capacity market
  • Forward vs. spot market pricing
  • What Else?