Electricity Declines 50% in U.S. as Shale Brings Natural Gas Glut: Energy

[jpak]

http://www.bloomberg.com/news/2012-01-17/electricity-declines-50-in-u-s-as-shale-brings-natural-gas-glut-energy.html

A shale-driven glut of natural gas has cut electricity prices for the U.S. power industry by 50 percent and reduced investment in costlier sources of energy.

With abundant new supplies of gas making it the cheapest option for new power generation, the largest U.S. wind-energy producer, NextEra Energy Inc. (NEE), has shelved plans for new U.S. wind projects next year and Exelon Corp. (EXC) called off plans to expand two nuclear plants. Michigan utility CMS Energy Corp. (CMS) canceled a $2 billion coal plant after deciding it wasn’t financially viable in a time of “low natural-gas prices linked to expanded shale-gas supplies,” according to a company statement.

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Power producers’ profits are deflated by cheap gas because electricity pricing historically has been linked to the gas market. As profit margins shrink from falling prices, more generators are expected to postpone or abandon coal, nuclear and wind projects, decisions that may slow the shift to cleaner forms of energy and shape the industry for decades to come, Mark Pruitt, a Chicago-based independent industry consultant, said in a telephone interview.

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[pscot]

1. So my electric bill should be going down soon

Right?

[AlecBGreen]

2. lol

Sorry, if I couldnt laught Id go crazy.

[Yo_Mama]

3. Two different industries here

The article is talking about utility-providing companies - it's talking about companies that generate power and sell it to utilities.

Your net cost at the utility company will probably continue to rise because of the costs imposed by renewable mandates, and necessary infrastructure investment. The grid is running sparse in some places, and there are problems in some places with incorporating newer projects. I think currently 30 states have renewable energy portfolio legislation.
http://en.wikipedia.org/wiki/Renewable_portfolio_standard

Gas generation isn't available everywhere - it's rather dependent on pipelines.

The cost of electricity on a grid is very different than the project cost of generating energy and selling it to the grid.

It does look like the US is running into a literal glut of NG this summer due to increased production and a milder winter. By "glut" I mean they should be running out of places to store it.

[jpak]

4. Renewable mandates don't increase electric rates

Right now, wind power displaces more expensive gas-fired electricity in US and European markets that have high penetrations of wind capacity - and lowers electricity prices.

In India - wind power has achieved grid parity with imported coal

and solar has achieved grid parity in many European, US and Middle Eastern markets.

yup

[badtoworse]

8. That's bullshit

The Section 1603 grants and the ITC's and PTC's kept the cost of renewable energy substantially lower than it really is. They are going away and will not be available for new projects and in the case of PTC's they won't be available at all after 2012

With $3 gas, I can make a megawatt-hour of electricity for about $40. That would be a stretch for wind, even with the tax benefits and impossible without them unless the cost of wind turbines drops substantially. Solar PV is not even close to $40.

I've worked in the electric power business for about 30 years and I know what stuff costs. IMO, natural gas will drop substantially below $3 and gas fired combined cycle will be the cheapest source of generation - period.

[jpak]

10. Oil and gas and nuclear are highly subsidized

at $ 3.00 per MBTU wind is more than competitive than gas fired electricity...

http://www.nrel.gov/docs/fy05osti/37657.pdf

and solar has already achieved grid parity in many markets in the US, Europe and Middle East

so sorry

yup

[badtoworse]

12. LOL. You should check ALL the facts before you post

The NREL piece you linked to was published in May 2005 and natural gas prices were not $3 at the time. The price paid to generate electricity in 2005 averaged about $8.47. See the following EIA link

http://www.eia.gov/dnav/ng/ng_pri_sum_dcu_nus_a.htm

The economics are very different with $8.47 gas. A typical gas fired combined cycle will have about a 7,000 btu/kwh heat rate, so the fuel cost would be about $59 per megawatt-hour. The variable, non-fuel costs for a combined cycle plant are about $10 per megawatt-hour and the fixed costs (based on typical PJM East prices for capacity, which are high by national standards) would add another $6.50. The all-in cost for a gas fired megawatt-hour in 2005 was about $75. I agree that wind could compete with that.

The same plant with $3 gas could make a megawatt-hour for $37.50 all-in, and wind cannot beat that price, even with tax benefits.

I would point out that historically, there was not a lot of data available on O&M costs for wind plants prior to about 2010 and plants developed prior to that usually understimated the costs to operate and maintain the plant. Given that, it's likely that NREL's estimates are too low.

Can you cite something more current?

Nope.

[oldhippie]

5. It seems to be working here in Texas .....

Being a long time PV enthusiast and current solar consultant, I keep a pretty close eye on current and future expected electricity costs, being that they are a key component in calculating paybacks and future cash savings. I've kept a detailed spreadsheet of my personal residence's electricity use (all electric house, no gas) and costs for many years. Although all the prdedictions over the years have always been for highly escalating costs, here are my costs for annual average KWHr for the past six years:

2006 $0.146
2007 0.132
2008 0.127
2009 0.130
2010 0.130
2011 0.109

As you can see, the trend is down. That probably won't last forever, but it is contrary to all the predictions of the solar industry that always hypes the coming big energy costs hikes to hawk their wares.

I just renewed my contract with my energy supplier for the next 12 months at $0.091/KWHr. I could have signed up for a variable rate that is tied to a natural gas price index which is expected to go down over the next year, but I like a locked in rate for planning. Even the current variable month by month plan is under $0.08 and trending down.

So while the decreasing energy costs trending down is good for my (and most people's) personal budgets, it makes it hard to price in increased utility electricity costs into the spreadsheet models calculating paybacks, return on investment, and justifying finances. The data to support it just isn't there, at least for my area here in Central Texas.

[FBaggins]

6. It is... the question is... what is "it"?

What components contributed what impact to those prices?

They have both solar and natural gas (as well as plenty of others) and usually have more competition between (dozens of) providers.

[oldhippie]

7. I guess what I am saying is .......

That the cited reduced costs of natural gas may be reducing electricity prices, at least here in Texas. The annual contract renewal propaganda I received from my supplier seemed to hint heavily that way. Even so, my electricity supplier tried to steer me to their higher priced plan, rather than the lower priced one. Like I wasn't going to notice?

[badtoworse]

9. What's going to happen when the Production Tax Credits go away for wind?

How much of Texas wind generation is bid in a low price and takes whatever the spot price is at any given time? The contracted wind I've seen in Texas sells in the $50+ range so I would say that gas is setting the marginal cost of electricity in ERCOT

[NickB79]

11. Wow, the nat. gas boom is even killing wind farms

With abundant new supplies of gas making it the cheapest option for new power generation, the largest U.S. wind-energy producer, NextEra Energy Inc. (NEE), has shelved plans for new U.S. wind projects next year

Now that's scary. Whatever happened to the wind sector being supported by the shale gas boom as I have been told about here on E/E?