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EIA Short Term Energy Outlook

The EIA recently put out a short-term energy outlook, which analyzed how the upcoming winter will look for all areas of the energy industry. Because of just how severe this summer was, perhaps it’s pressing to look ahead and contrast with what looks to be a completely manageable winter for the U.S. and by extension, Texas. 

This is extrapolated from the EIA short-term winter fuels outlook as well. But as is discussed, a forecasted “milder weather” will mean less fuel usage to heat houses. Depending on region, a Texas home heated by natural gas will be more expensive due to natural gas markets, as is discussed in the same report: 

“In contrast to the national average, EIA forecasts that expenditures will increase for homes that heat with natural gas in the Midwest and South as a result of higher retail natural gas prices.”

But on average, everything is expected to drop in the home-heating department, meaning that the majority of customers will see a drop in their bill by 1%.

The overall outlook also extends into the beginnings of 2020, so the data looks beyond the winter on a more surface level basis. We will briefly explore electricity, coal, renewables, emissions, and natural gas when considering the EIA’s projections.

Electricity, Coal, and Natural Gas: Greatest Hits of the Energy Outlook

Perhaps a positive effect of having warm overall temperatures this year is that we can expect a milder winter. This means less expensive energy bills due to decreased furnace usage and winter fuels in Texas and other southwestern states mainly, as discussed above. 

Looking past the winter and into 2020, the amount of electricity generated by natural gas plants will rise. This will most likely be necessitated by the continual decrease of coal plants. The EIA says coal will continue to fall by another 11% in 2020. 

Additionally, natural gas saw increased consumption this year, but because surplus storage, the prices stayed low in the last half of the year. The EIA forecasts natural gas production to stay relatively flat and prices to actually decrease through the early 2020 year because of the oversupply at the Henry Hub. This is all despite an increasing demand for natural gas to generate electricity across the country. 

Renewables and Emissions

Electricity derived from wind energy will increase from 10% to 12% in 2020, owing to the continual rise in renewable energy initiatives (especially in Texas). As the outlook states, “Texas accounts for 19% of the U.S. non-hydropower renewables generation in 2019 and 22% in 2020.”

As coal slowly dies out, CO2 levels are going to keep falling. By this time next year, CO2 levels will have dropped 4.1% in comparison to 2018 levels. A lot of this has to do with what they project to be a year that sees less household energy consumption overall.

What to Expect From Wholesale Electricity Rates in 2020 and Beyond 

Using data from 2018 on the wholesale electricity market, we can view the somewhat consistent pricing of wholesale electricity from the ERCOT North hub – from the months of January to June. Yet this consistency is just a lesson in perceived stability, as wholesale electricity, after all,  is rife with volatility. 

Wholesale prices this year alone were a wild ride as graphs spiked and danced to reflect the surging prices of extreme heat. But that’s just the nature of the market; as all commodities go, things fluctuate and you can only ride out the waves until a baseline homeostasis replaces the chaos.

Given that we accept this volatility, what if even more erratic behavior is in the books for wholesale electricity in the near future? 

Let’s explore that question in a little more detail

More Volatility on the Horizon?

Let’s pursue an answer to the following question: if wholesale electricity prices fluctuate in tandem with renewable sources like wind and solar, will an increased reliance on renewables simply necessitate a more volatile market?

There has always been a reliability problem for renewables in the sense that wind can stall for days on end, leading to an electricity demand that outweighs electricity generation. 

But when the wind is really rolling, this often means negative wholesale electricity prices. These wholesale prices don’t necessarily mean cheaper retail electricity for consumers, but only those who are trading on the wholesale power market and who can utilize the cheap electricity. Often though, negative wholesale electricity prices simply mean a surplus of electricity generation + a decreased demand, meaning that many companies pay factories to take excess energy off their hands. After all, it’s often cheaper to burn up excess energy than power down an entire factory. 

With this being said though, if renewables continue to grow, and we get closer and closer to an all-renewable grid, will this reliance on wind and solar simply mean more violent fluctuations of negative or exorbitant prices? Unless battery storage continues its positive trajectory, it just may.

Google (And Company) Will Hold a Huge Share of Electricity

According to Green Tech Media, Google has laid claim to even more renewable energy investments, meaning that they will hold the power to sway wholesale markets in the future. And tech giants continue a similar trajectory and push for renewables, the markets might rise and fall in conjunction even more with more green-minded stakeholders. 

But alas, Google isn’t only looking to decarbonize the grid but also to up the ante on energy storage technology, meaning that when the wind blows strongest, and the sun shines its brightest, there will be plenty of energy for the cloudy, windless days.

Retail Renewable Electricity Rate Outlook 

While anomalies can happen in the wholesale market – think back to the huge price spike with Griddy over the summer – the retail world is usually much more stable. This isn’t necessarily true for the town of Georgetown, Texas though, who is currently seeing higher retail electricity costs as a result of switching to all renewables. 

Georgetown is an example of a city generating far more power than needed and having to take financial losses despite having surplus power – an odd but common happening in the power world for those wanting to get rid of excess electricity.

The residents of Georgetown saw their bill raised by 22% from last year. This has more to do with lower gas prices mixed with excess energy that the town takes financial losses for. While a unique case of a 100% renewable town, will the volatility of renewables bleed into retail electricity bills and make them much more erratic? Sort of like Griddy’s wholesale model?

That’s hard to say at this point. Many are still really optimistic about renewables offering a much more promising future, but at this stage, the current paradigm doesn’t yet support a 100% renewable initiative. Checking in with Georgetown will be interesting in a year or two to see how electricity prices have faired.

Machine Learning for Cheaper Electricity Rates?

For renewable customers, some companies are using machine learning to scour utilities for the cheapest renewable electricity. Given the oft-discussed volatility of wholesale electricity prices, especially those that base their prices on something as erratic as wind levels and sunshine (wind and solar), machine learning offers automation and a way to break through the noise of the market to find the proverbial signal. 

What this means is that consumers get the cheapest prices in real-time and get advisories on the wholesale market that directly factors into retail pricing. There are even technological developments that allow smart thermostats to adjust to price spikes ahead of time, meaning that households can cool down or heat up quickly before a costly spike in the wholesale market affects the bill. This would offer incredibly cheap prices if there was dynamic adjustment through connected technologies. 

Wholesale and Retail Worlds Collide

The Baker Institute put out a study on the economic impact of the Texas reform in 2002, where the electricity market was deregulated. Through that study they found that the stronger competition of deregulated markets still has discernible effects on wholesale market prices. They also found that although the competitive electricity markets (deregulated areas of Texas) cost higher on average from 2002 and upwards, but that the disparity between deregulated and regulated prices has shrunk considerably in that time.

 How Plausible is an All-Renewable Electric Grid in the US?

Is the key to tackling climate change really as simple as ‘electrifying everything’. According to Vox, and many others, it is. 

Electrifying everything in this sense means that all means of energy production should be replaced with an electrical alternative (if at all feasible). Sounds great, but we aren’t quite there yet and will still have to burn natural gas to generate the majority of our electricity need (about 35% according to 2018 numbers).

Vox goes a step beyond this in another article and says that it’s economically plausible to run the U.S. entirely on renewable energy by 2050, citing this projection, among others. The authors of that Energy & Environmental Science report believe that Wind, Water, and Solar (WWS) energy will prevail and be robust enough to generate zero-carbon energy. And although there are criticisms about just how reliable most of that renewable energy would be, those same experts actually agree that the grid will be more secure with renewable grid modeling.

But there’s so many complexities at play that span all political, logistical, and technological corners of the country. Additionally, over-generation and duck curves are a commonly-posed problem with renewable energy. 

Let’s explore some solutions for facilitating this all-renewable vision for the U.S. energy system as a whole.

Some Solutions: Larger Scales, Increased Storage Facilities, and Microgrids

 

Let’s ignore the incredibly dense and mind-boggling policy considerations and Congressional cooperation that would need to take place to enact this global green initiative for energy. Instead, let’s explore some smaller scale solutions.

This article by David Timmons, which was featured on TechXplore, offers some insights on the importance of how cost has an inverse relationship to how large the scale of the project is. As an example, this is what he says about scalability, “in the United States, large-scale solar farms can be more than 1,000 times larger than residential rooftop systems and about half the cost.”

Switching gears, microgrids can also inch the U.S. much closer to a renewable grid. Through smaller, more flexible grids, power outages are less a threat because there are always back-up systems in place. In addition, more energy is saved because about 5% of all electricity is lost through longer transmission lengths, according to the EIA. So microgrids can be a game-changer if they are utilized strategically with key points of high renewable energy generation. 

Lastly, better battery capacity means less wasted energy. And because there is an over-generation problem with renewable energy, storing excess electricity is key for efficiency and can mean a more robust electrical grid. Using the ‘duck curve’ as an example, solar energy hits points of peak production and then obviously falls off during the night time. Better batteries can minimize the wasted electricity. 

Wind to Surpass Coal in Texas in 2020

 

Texas wind power has been impressive for some time now. It was this year after all that wind surpassed coal for energy production, offering 22% of all energy generated in the state in the first half of the year. And the divide between coal and wind will only grow larger come 2020. 

This is a huge difference from a decade ago when experts lamented the future of renewables, pegging them for energy generation pipe dreams. But with Texas having the most amount of wind power out of any state, reliance on this renewable is obviously very viable. 

And the rest of the world, according to BP, will follow suit with renewable energy sources to make up for increasing global energy demands: BP says that by 2040, the global energy demand will grow by a third. Additionally, natural gas and renewables will rise commensurately to generate enough energy. 

Wind Power Projections and Stats

In Texas, the Department of Energy projects that wind energy will account for 24% of all Texas energy in 2020, according to the Houston Chronicle. So, combined with coal’s steady decline as of late, forecasters are confident that wind will overtake coal all of next year, and possibly for the foreseeable future in Texas.

This contradicts what Trump says about wind energy, showing instead that wind is as relevant as ever and will continue to rise in the states. It also accounted for 114,000 jobs last year, which makes it a pretty robust talking point for not only environmental health but also employment growth.

The EIA, in their September energy review, show that renewable energy has continued to rise across all sectors for electricity generation, and that coal has consistently fallen. In addition, hydroelectric has always accounted for much more energy production, but recent national trends show wind and hydroelectric almost intersecting on the Y-axis for most graphs. This convergence speaks to just how quickly wind has progressed throughout the country. 

So, with renewables becoming cheaper and offering more jobs, the rest of the country will only add to the continually climbing numbers of renewable energy generation. Can’t argue with that.

Climate Change and The Texas Electricity Grid

Climate change is having real impacts on the Texas grid. With Texas’ grid operator ERCOT recently declaring an emergency because of record-setting electricity demands, there is considerable pressure for the state to make changes.

With global energy needs projected to rise by 25%-58%, Nature states that even just moderate increases in global temperature will only drive the constant use of air conditioners and energy. According to the same study by Nature, Commercial electricity accounts for 80% of the global total climate-driven energy demand increase. 

These summers will continue to look like the norm, the Texas grid will be overused, and consequently, reserve margins will stay dangerously low if climate change continues at its current rate.

 

Can the Texas Grid Handle the Current Population Growth of Texas?

According to the Texas Demographic Center, the total population in Texas will be closer to 50 million than its current 29 million. The question to ask then is this: will enough of the pressure be alleviated for the Texas grid through power plants and sustainable energy?

The Department of Energy put out a report in 2015 that details all of the complexities of tackling climate change. To offer solutions, and to further prevent the grid from failing due to high temperatures and increased demand, the DOE demands for more resilient grids. 

This means that builders embrace smart technology, the government starts more projects to prevent hurricane damage, and more wholesale electricity is utilized from moderate weather states during peak summer months. 

 

Will Blackouts Become the Norm?

Actually though, blackouts are pretty normal. According to Climate Central, “147 million customers lost power, for at least an hour and often far longer, from weather-related outages since 2003, an average of 15 million customers affected each year.” And so far, there has been a ten-fold increase in blackouts between the years 2003 to 2014. 

Regarding the Texas grid, this might be alarming. ERCOT’s 2019 planning report forecasts the next 15 years without adjusting for climate change-induced increases in temperatures all that much. This data could be misleading and could mean that the reserve margin is too low to keep up with electricity demand.

But all of this is speculation at this point. Texas has been making huge strides in sustainable energy. And by 2050, once the population has increased drastically and the temperatures have risen to their projected amount, the country will most likely enough sustainable pieces in motion.

Analyzing The ERCOT Reserve Margin Prediction

Earlier this year, the Electric Reliability Council of Texas (ERCOT) made an optimistic prediction that raised alarms for NRG’s CEO, Mauricio Gutierrez. According to Gutierrez, ERCOT’s prediction that the next five years are looking good for Texas electricity generation and reserves is not true.

Gutierrez has said that ERCOT used outdated information in their latest forecast. He goes on to say that for a multi-year forecast (2020-2024), it’s suspicious that ERCOT included 1.7 gigawatts of power capacity from generators that are non-functional for the next 5 years. This doesn’t include another 1.4 gigawatts from thermal generation plants that are to be retired.

According to the NRG CEO, the amount of phantom power that ERCOT included in the report, accounts for 4% of the reserve margin. Currently, the reserve margin is around 8.6%, so according to next year’s projection of 10.5%, renewable energy is going to account for an increase in energy reserves.

Renewable Energy’s Effect on Texas Reserve Margins

The reserve margin is defined by the U.S. Energy Information Administration as following:  “Reserve margin is (capacity minus demand)/demand, where ‘capacity’ is the expected maximum available supply and “demand” is expected peak demand.”

This means that if the Texas Grid has a reserve margin of 12%, then there is a 12% buffer between the forecasted peak demand (total electricity demand) and the amount of electricity stored in reserves.

But will renewable energy projects generate enough electricity to push the reserve margin in the range that ERCOT predicts?

Despite what Mauricio Gutierrez says though, Texas renewable energy is humming. Wind recently surpassed coal for energy production in Texas. In addition, wind energy is continuing to drive the price of power down overall. And according to this post from Texas Policy:  “July 2018, project installations have grown to nearly 23,000 MW in Texas alone, which is now 25% of the total installed in the U.S.”

So a lot of projects are always underway in Texas, meaning that the projections and optimistic increase in the reserve margin for the upcoming summers could be an accurate assumption.

Will ERCOT’s Prediction Hold up?

Back in December, ERCOT had already predicted a lower reserve margin because of “delays and cancellations of planned generation projects.” And we will see if the optimism for Texas electricity was accurate or a little “overstated”.

As the Houston Chronicle article states,  NRG attempted to adjust the ERCOT report, they found that to reach a reserve margin in the 10-12% range, “Texas would need to add more than 17 gigawatts of new renewable generation sources in the next three years.” That’s a big margin considering that Texas currently has close to 80 gigawatts of total capacity. But time will surely tell.

 

Update:

Wholesale Electricity Rates in Texas Soar in Summer of 2019

This summer has seen dramatic spikes in wholesale electricity rates in Texas.  ERCOT has called for emergency conservation of electricity as demand for energy has pushed the electricity grid to the brink of capacity.