The volatile energy markets are dependent on many factors, including legislation, weather events, consumer demand, and environmental concerns. Several influencers come into play when forecasting 2015 energy price trends. Environmental Protection Agency (EPA) regulations are impacting today’s energy price trends.
Electricity Generation. New federal regulations on power plant emissions have prompted electric utilities and generators to schedule two dozen coal-burning generators in the U.S. for decommissioning, beginning in 2015. On April 29, 2014, the U.S. Supreme Court upheld the EPA’s Cross-State Air Pollution Rule (CSAPR), which is expected to cost power plant operators $800 million per year, starting in 2015. The U.S. Energy Information Administration (EIA) forecasts 16% of coal-fired capacity available at the end of 2012 will be retired by 2020. The increasing use of natural gas for power generation will put upward pressure on prices for both natural gas and electricity.
In PJM, the regional transmission organization (RTO) responsible for reliable delivery of electricity in 13 Midwest and Mid-Atlantic states, the current fuel mix used to generate electricity is 40% coal, 30% natural gas, 19% nuclear, and 11% renewable and other. At the current rate, natural gas will surpass coal as PJM’s primary source for generation by May 2015. Natural gas is attractively priced compared to coal, and natural gas-fired generators are easier to install and operate. The U.S. Nuclear Regulatory Commission has granted license renewals providing a 20-year extension to 74 of 100 total operating reactors in the U.S., according to the EIA.
Thirty states have renewable energy mandates in place for wind and solar generation sources. Implementation of renewable generation in the U.S. has been slow. Solar power provided 42% of installed generating capacity in the U.S. during the first half of 2014, while wind accounted for 14 percent. Biomass provided less than 3%, and geothermal and hydropower each comprised less than 1% of installed generation capacity in the U.S. during this timeframe. The cost of electricity from a green system remains high relative to the cost of electricity created by gas or coal generators.
Fossil fuel consumption and emissions increase substantially during extreme temperatures. Cold weather increases the cost of power generation from gas, coal, and nuclear power plants. When the polar vortex triggered very cold temperatures in the U.S. in early 2014, energy use and carbon dioxide emissions notably increased.
Stabilize energy costs. The transition from coal-fired to natural gas-fired electricity generation in the U.S. is expected to greatly affect gas and electricity prices that impact RTOs, suppliers, and customers. Energy consumers are encouraged to mitigate risk exposure to volatile energy prices by using a fixed-price supply contract as soon as possible. Customers unwilling to commit to a one-to-three year supply contract should at least consider locking in a short-term, four-to-five month supply solution. Achieving budget certainty now for this winter’s gas and electricity costs is a prudent business decision. For more information, contact consulting firm APPI Energy at 800-520-6685 or firstname.lastname@example.org.