Q1 Energy Market Update Recap: Winter Update and DER State-of-the-Market

Jonathan Lee, Senior Energy Market Intelligence Manager at ENGIE Insight

As supply and demand fundamentals rebalanced during the first half of this winter, wholesale natural gas prices climbed to their highest level in nearly two years. Although wholesale electricity also increased, price gains were more muted in many regional markets. In our recently presented Energy Outlook, Q1 Market Intelligence Update webinar, ENGIE Insight (formerly Ecova) examined the major market drivers and shared our outlook for the second half of winter. We also explored power sector trends with the potential to transform the industry in the coming years and took a look at how the distributed energy resources market has grown over the year. Key takeaways from our presentation include:

1. We’ve seen positive trends in the DER market.

Solar generation increased approximately 40 percent year-over-year, while wind generation was up 20 percent on a yearly basis. We expect similar growth in 2017 due to a decline in underlying unsubsidized costs, time sensitivity surrounding federal subsidies and net metering programs, and the existing pipeline of utility, municipality, residential, commercial, and corporate buyers.

2. Winter weather will have a significant impact on energy price direction.

Temperatures were colder than normal for much of December, leading to skyrocketing wholesale natural gas prices. However, January experienced inconsistent temperatures, which blunted further price gains. If cold temperatures dominate the second half of winter, energy prices will see continued upward pressure. Conversely, if temperatures moderate, energy prices could retreat to pre-winter lows.

3. The correlation between power markets and NYMEX natural gas has declined.

The link between electric and natural gas markets is growing as a whole, but regional dynamics have had more influence on power markets this winter. The correlation is expected to strengthen next winter, but monitoring pricing at a regional level may uncover more buying opportunities.

4. Keep an eye on these recent power sector trends.

  • The generation mix will largely depend on the fate of the Clean Power Plan and other EPA regulations.
  • States will likely take a larger role in the push toward higher renewable goals.
  • As energy storage matures, utilities will look to technology as an alternative to peaking generation.
  • DER growth will continue to force utility adaptation and policy debates.

For more information, I hope you’ll watch our webinar recording. ENGIE Insight’s new Energy Price Hub also serves as an invaluable resource for the latest updates on energy prices and market intelligence.

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