With supply and demand fundamentals rebalancing throughout the year, wholesale natural gas prices have climbed to a near two-year high as we head into winter. Although wholesale electricity prices have also increased, many regional markets have remained near 2012’s lows. I recently had the opportunity to examine the major market drivers and share ENGIE Insight’s outlook for 2017, both for the wholesale energy market and the regulatory environment, during our “Energy Outlook, Q4 Market Intelligence Update” webinar. Additionally, we explored the potential risks and rewards of wind power purchase agreements, especially as more corporations look to utilize them to meet high renewables targets. Here are a few of the key takeaways from the presentation:
1. Natural gas power sector demand reaches record high, while production slows.
Low natural gas prices, coal plant retirements, and increased gas-fired generation capacity propelled natural gas-fired generation to a record high, and the largest source of electric generation in the U.S. during 2016. Even though production slowed from a February high, the market remains well-supplied ahead of winter.
2. La Niña impacting winter weather forecasts, elevating heating demand expectations.
After last year’s record warm winter, emerging La Niña conditions have forecasters calling for a much colder winter this year. A La Niña-influenced winter can be described as the extreme normal, which typically brings colder/wetter conditions to the major gas consuming regions in the North and East.
3. 2017 energy price forecast.
Wholesale natural gas and electricity prices are expected to slowly rise into 2017. Upside supply price risk is more likely than further downside moves heading into winter. At the same time, many utilities are proposing base rate case increases for infrastructure improvements and implementation of innovative technologies.
4. Regulatory environment facing increased uncertainty heading into 2017.
The status of the Clean Power Plan is in question as the D.C. Circuit Court of Appeals is scheduled to rule on its legitimacy. Other EPA energy market regulations could potentially see some softening or elimination under a new administration. Utilities will continue to evaluate rate design as distributed energy resources play a bigger role.
5. Four key takeaways on implementing wind PPAs.
- Large companies use PPAs to green large chunks of load without having to worry about specific site issues that arise with on-site approaches.
- If considering PPAs, begin the evaluation process sooner rather than later to maximize the PTC credit.
- Savings and strong claims to additionality (causing renewables to be built) will be tougher with smaller deals.
- Don’t underestimate wholesale price risks.
If you missed the webinar, it’s not too late; we’re bringing it to you. You’re invited to click the link below to watch the webinar recording at your leisure. As a reminder, our Energy Price Hub is also a great resource to help you stay informed and get the latest updates on energy prices and market intelligence.