ACTUALIZACIONES DEL MERCADO

• "Juez federal elimina 'freno' a empresas de energías renovables", dejando sin efecto los obstáculos para conectar las plantas que generan energía eólica y solar al SEN.
• "Energías renovables, relegadas de nuevo en segundo paquete de obras" el segundo paquete del Plan Nacional de Infraestrcutura contiene 9 proyectos de energía, todos ellos de gas natural. No se incluye ningún plan para energía renovable.

The weather has been unusually warm this month, which has drastically pushed down natural gas prices. This stretch of higher temperatures in Texas and across the US has taken a lot of energy out of both the natural gas and electricity markets. It has also created very attractive opportunities for shorter-term purchases, since natural gas is the fuel for many for power plants across Texas. Moderate temperatures along with low spot price volatility from this summer have created weakness in future heat rates and also contributed to this electricity market correction.

Throughout the year, analysts wrestled with many variables as they tried to forecast the End of Season (EOS) natural gas storage levels, which were reported by the U.S. Energy Information Administration (EIA) in the first week of November. The amount of gas in storage was impacted by the following:

Ohio House Bill 6 (HB6), signed into law in July 2019, provided a bailout for two nuclear plants and two coal plants while lowering Ohio’s renewable energy and energy efficiency goals substantially. At the time of its passage, the legislation was treated to a negative reception from the press and the bill faced scrutiny from environmental groups. Following the arrest of former Ohio House Speaker Larry Householder, a fierce advocate for HB6, on racketeering charges, Ohio lawmakers are debating whether to repeal the law, and how.

In New York, the 2020 election was a big deal. It’s the first time since the 1930s that Democrats have successfully held a majority in the State Senate. While the Presidential race in New York was called for President-Elect Joe Biden almost immediately after polls closed, which gave the illusion of completion, the state is still counting ballots today. This year, as is true every other year, every member of the State Legislature was up for reelection. While incumbents certainly carry an advantage into any election cycle, New York has seen a political awakening following the 2016 election of President Donald Trump. This movement carried a new, Democratic majority into power in the State Senate in 2018 and lead to many moderate Democrats being swept out in favor of more liberal candidates.

Yesterday, November 5th, ERCOT released its Seasonal Assessment of Resource Adequacy (SARA) for the upcoming winter season. In summary, the grid operator expects to have plenty of power plant capacity available this winter. ERCOT expects winter peak demand to top out at 64.5 GW, just shy of the all-time winter peak demand record of 65.9 GWs*. 

The rise in the futures price for the 2021 NYMEX Henry Hub natural gas contract has been driven by one major fundamental driver - the steady decline in natural gas production over the last 10 months. Figure 1 shows that in November 2019 the EIA reported a record high average daily production of dry natural gas of 96.2 billion cubic feet (Bcf) per day. In September 2020 the daily average production fell to only 87.1 Bcf/day, a decrease of 9.4%. Even with a decline in gas production, the mild winter last year and the demand destruction from coronavirus has created a situation where there will likely be record levels of natural gas in storage.

Over the last 4 weeks wholesale electricity futures in PJM have continued to rally. Fueled by bullish near-term natural gas prices, electricity prices have been highly correlated to NYMEX futures. Figure 1 shows that prices in PJM East across all calendar years significantly increased from March through May as the COVID pandemic began to spread. The market fell just as quickly through June and has slowly rallied over the last four months. Since late September prices across all calendar years have risen between 2% and 5% with the biggest increases in calendar year 2021 (blue line) and 2022 (black line). While Figure 1 is specific to eastern PJM, similar trends have been observed in the western parts of PJM.

Since early 2018, the forward power market in Texas has been in various states of backwardation (prices for a commodity get less expensive into the future). This backwardation made longer retail electricity agreements attractive as each additional year purchased was a chance to capitalize on lower futures prices and reduce the overall weighted average price. Last fall, the slope of that backwardation reached its maximum negative slope (see Figure 1). On November 1, 2019, the price for calendar year 2021 was trading at approximately $44/MWh, while 2028 was trading below $24/MWh. The $20/MWh discount from 2021 to 2028 produced a significant amount of backwardation and a downward sloping forward market for wholesale electricity.

October 31st is the deadline for building owners to post their Energy Efficiency Rating Label. This is required for all buildings over 25,000 square feet that are listed on the 2020 Covered Buildings List for benchmarking compliance. In December 2017, the New York City Council passed Local Law 33, which was later amended by Local Law 95 in 2019, requiring building owners to post this label in a conspicuous location near each public entrance. The intent of this law is to provide transparency into a building’s energy usage and efficiency.