Electric utility trends and predictions for 2016
Energy storage heats up as gas stays cheap, nuclear is challenged and coal plants fold
Increased adoption of energy storage, particularly by commercial and industrial and institutions
Energy storage is heating up. Though the technology is still pricy, it offers unique benefits that developers of power projects find attractive. There are several technologies available, but it is likely that battery prices will continue to drop as they have in years past, leading battery-based energy storage to continue to lead in revenue and overall activity.
Utilities benefit from energy storage capacity because the technology helps smooth out the intermittency of renewable energy, which can play havoc with power grids that weren’t designed to handle wind and solar. Also, battery prices have declined more than 50 percent since 2010. This puts them within the reach of property developers for storefronts, malls, apartments, hospitals, universities and more. Moody’s Investors Service wrote that if these trends continue, C&I use of lithium-ion batteries for energy storage could become economically viable in the medium term.
Growing interest in energy imbalance markets
An interesting story to watch evolve in 2015 was the growth of the California ISO’s Energy Imbalance Market. The market first went live in late 2014, but it was 2015 when the market really took off. The EIM is now delivering savings, and has the involvement of several major utilities in the West, such as NV Energy, PacifiCorp, Portland General Electric, Arizona Public Service and Puget Sound Energy.
According to the California ISO’s most recent data from the third quarter of 2015, the market has delivered total estimated gross benefits to $33.41 million since its launch, which is consistent with its earlier projections. With this success and growth so far, look for more utilities to begin consider membership in the EIM — particularly ones operating in the Western U.S. and that either have a lot of renewable energy, or would like to use more.
Not just coal plant retirements, but perhaps more nuclear plants shuttering
In 2015, several power plant owner/operators found that cheap natural gas and high operational costs were making their nuclear power plants more of a financial burden than a blessing. In doing this math, some of them found their nuclear plants too expensive to keep open.
Entergy Corp., the largest single holder of nuclear power plants in the U.S., decided in 2015 to close its FitzPatrick and Pilgrim nuclear power plants due to the deteriorating economics of keeping them running. Rochester Gas & Electric even drew up contingency plans for its continued reliability in case the Ginna nuclear power plant has to close.
We already know about the large number of coal unit retirements that are forthcoming, but it’s also possible for the U.S. nuclear fleet to shrink even more in the coming years. China’s plan to pour $1 trillion into building new nuclear power plants should not be overlooked, however. There will be growth in the nuclear sector, but it will not likely be happening in North America.
More discussion of streamlining transmission projects
If the utility industry were to write a late Christmas list for itself, this item would probably be on it. There seems to be a growing realization that a lack of an upgraded power grid and the amount of hoop-jumping that it takes to get a power line built is hampering renewable energy use. As the nation and the world shifts their generation mixes away from fossil-fired and toward other types of power plants, transmission can help grid operators stay flexible.
Many transmission projects in the citing and approvals phase pitch themselves as enablers of renewable energy. For example, in New England, several power line projects were proposed to bring lower-cost Canadian hydropower to population centers in those states.
Growing utility interest in microgrids
As of the fourth quarter of 2015, there were nearly 1,500 microgrid projects representing more than 13 GW of capacity, according to Navigant Research. Microgrids are becoming more mature, and more attractive to developers who need to bring reliable power to isolated, self-contained or remote areas. While the United States still leads all countries in terms of microgrid capacity and total project numbers, Asia Pacific is assuming more of a market leader role, according to the report. The region is tied with North America in terms of total identified microgrid capacity, with each region representing 42 percent of the total market.
Continued merger activity into 2016
Due to the demands for continued shareholder profits and in response to sluggish demand for electricity, 2015 was a busy year for utility company mergers and acquisitions, and this trend appears to be set to continue. Two major electric utilities, Duke Energy and Southern Co., made moves to snatch up natural gas companies Piedmont Energy and AGL Resources, respectively. The Exelon Corp./Pepco Holdings merger hit a snag in Washington, D.C., but appears ready to seal the deal sometime in 2016. The Energy Information Administration says this combined utility would be the largest in the U.S. on a customer basis. Also, Tampa-based TECO Energy learned it would be bought for more than $10 billion by Canada’s Emera. In 2016, look for regulators to be the wild card for would-be mergers, as they were in the Exelon/Pepco deal.
Disillusionment with carbon capture as a way to clean up coal
Hopes were once high for carbon capture and sequestration, with governments across the world pouring research and development dollars into pilot programs, but the promise has failed to materialize even as the need for it to work became more urgent. The EPA’s Clean Power Plan leaned heavily on CCS as the way for the coal power industry to stay in the game, but supporters of coal power saw this suggestion as disingenuous at worst and unrealistic at best.
In the UK, the Drax Group pulled out of the White Rose CCS project in September 2015. The Department of Energy withdrew funding from the once-hyped FutureGen 2.0 project in February. And the Kemper County power plant, which was supposed to be up and running by now, continues to rack up cost overruns. If the technology is to survive at all, it will likely have to do so on a smaller scale than is useful for the bulk power grid — perhaps in the industrial sector.
More investors jumping into wind and solar
In mid-December, Congress sent the renewable energy industry an early Christmas present when it extended the production tax credit and the investment tax credits. The fact that these programs, which benefit developers of wind and solar power projects, were renewed and the fact that they were renewed for half a decade will encourage those who were looking to invest in renewable power by making the return on investment more favorable. In 2016, look to see companies who were already into green power double down, and also for curious newcomers to get involved for the first time.
Besides the tax credits, there’s also the additional factor of states needing ways to come into compliance with the Clean Power Plan. This regulatory pressure, as well as market pressures, will see a slowed coal burn and a move toward natural gas, wind, solar and distributed energy.
A rise in natural gas prices as oil production slows?
The oil and gas industry is notoriously volatile and unpredictable, but we do know that the sector produces more natural gas when more oil is being found. Right now oil prices are so low that exploration is contracting. With this factor at work, we could see the price of natural gas rise a bit — probable not enough to alter the so-called “dash for gas” in the power generation side, but perhaps enough to cause steeper energy prices during cold weather. A mitigating factor here is that several liquefied natural gas projects were canceled or ran into delays, so this could cause more gas to become bottled up in North America, keeping prices low.