As heat indices reach triple digits this summer, believe it or not, the energy markets are responding with short- and long-term savings opportunities for buyers. Below are the market trends that could bring value to your budget.
Buy Electricity for Future Years to Save Money
The current wholesale market for electricity delivered in 2021 and 2022 is flirting with all-time lows. The previous all-time low was established around this time last year at $27.50/MWh. The rates for these two future years are now sitting just 4% above that level at $28.50/MWh and $28.25/MWh, respectively. This is good value and well within most risk managers’ risk tolerance so purchasing power at these levels should be considered.
As for the rest of the calendar strips, power delivered in 2019 is commanding a bit of a premium, trading at $30.25/MWh. This premium is mainly due to the amount of natural gas in storage nationwide being well below the five-year average. As more natural gas fired generation is built the natural gas and electricity markets are become more connected at the hip, as one goes up so goes the other. Calendar strip 2020 is still trying to hold a small premium at $29.45/MWh. This calendar strip has room to go down especially if natural gas storage levels start making gains over this summer.
Jump on Capacity to Save
Capacity is the cost for reliable power and makes up approximately 20% of your electric supply rate. PJM, the transmission grid operator responsible for reliability in our region, holds an auction each year for the value of capacity. The auction is held three years in advance of the delivery year which starts each June. The capacity auction rates vary each year depending upon how much supply is available and how much demand is projected.
The value story with capacity starts June 2019. The capacity auction rates for this planning period cleared at a price nearly half of what you are paying today. The downward trend then continued with the next planning period starting June 2020 with an additional reduction of 18%.
These extremely discounted capacity costs have the potential to reduce your overall supply rate by 10% to 15%. If your supply contract is coming up for renewal this year you can take advantage of these low prices now by locking in capacity and moving that future savings into rates paid today.
Glut of Regional Natural Gas is a Savings Opportunity
Ohio is a major contributor of the natural gas shale play. Producers in both shale formations, Utica and Marcellus, are pumping out gas like there is no tomorrow. Production from these regions continues to break records and is now contributing over 30% of all the natural gas produced in the lower 48 states. Pipelines have been built to move the natural gas out of our region, however, not fast enough to keep up with the pace of production. The result is the potential to capture negative basis prices.
Physical constraints of a system usually mean higher prices for customers but in this case, it is the opposite. The pipeline constraints are keeping the gas trapped in our region and pushing down prices to again flirt with all-time lows. Depending upon your load shape and location in Ohio, prices for natural gas can be a discount to Henry Hub that trades on the NYMEX. Many customers are enjoying offers from suppliers at 5 to 15 cents below NYMEX settle prices. On the wholesale market, basis quotes are reaching levels of negative 50 cents in some locations. This is a great opportunity to take advantage of the (temporary in the short-term) physical constraints of the system.
On the commodity side, just as electricity, prices for natural gas delivered in 2021 and 2022 are extremely low. The NYMEX is trading around $2.60/MMBtu for delivery in those years. Comparatively, the NYMEX has settled between $2.45/MMBtu and $4.14/MMBtu each calendar strip since 2014. Add that to the negative basis and you have incredible value for natural gas. Get it while the sale lasts!