Seasonal Price Swings in Natural Gas Have Limited Impacts on Long-Term Trends

At a webinar last week, Clean Power Plan - New Policy or New Normal?,” Synapse’s Dr. Elizabeth A. Stanton hosted Senior Associates Patrick Luckow and Pat Knight for a conversation about how declining costs of both natural gas and solar power impact clean energy planning.

Natural gas prices on the spot market have risen significantly over the past several weeks—from under $2.00 per million Btu at the end of May to more than $2.60 per million Btu this week. These seasonal patterns in prices are common with seasonal swings in gas consumption. Natural gas has two seasonal peaks in prices and consumption—one in the winter for heating purposes, and another in the summer at electric power plants as air conditioning requirements drive load upward. As a result, near-term weather forecasts can play a major role in expectations for projected consumption. A hot summer forecast means more demand for power, potentially served by flexible natural gas plants. While utilization rises in the summer, the average natural gas plant capacity factor remains below 70 percent in the summer months of 2015.   

Despite seasonal changes in the price of natural gas, summer peaks in electric use will continue to be served by natural gas “peaker” units, as well as new flexible natural gas combined cycle units. To serve this growing need, natural gas production in the United States is expected to grow 39 percent between 2015 and 2030, according to EIA’s Annual Energy Outlook 2016, released in May. This growth would serve both industrial and electric generation demands. New renewable power generation capacity, largely from wind and solar, can help to reduce the impacts of increasing natural gas prices on consumers’ wallets.

Texas is one state where new electric capacity is largely expected to come from solar power. In Texas, a state with plenty of gas and solar capacity, nearly 10 GW of coal are expected to be retired by 2031, even before any consideration of the Clean Power Plan. Instead, these retirements are largely driven by EPA’s Regional Haze rule. Expectations for what kinds of and how many new power plants will be built in Texas vary. But, in nearly all future scenarios modeled by the state’s electric system operator, new power generation capacity comes entirely from solar additions—20 GW in the baseline scenario. Solar generation matches up well with the increasing daytime power use associated with summer air conditioning. Air conditioners are often still running when the sun sets and solar generation drops off, however, presenting challenges that in the past have been resolved using flexible—but expensive—gas-first power plants. Today, in most areas of the country this can be solved with improved processes and coordination, though these opportunities may be harder to come by in the more isolated Texas system. Initial modeling by the Texas system operator showed significant shortages in the early evening hours—upwards of 18 GW in the baseline scenario. Next steps for the system operator’s modeling initiative will include consideration of alternative scenarios with higher levels of energy efficiency and storage resources. These clean energy resources are likely to diminish or entirely eliminate the evening ramping needs.

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Eager for more information on the future of the Clean Power Plan, integrated resource planning, and renewable energy generation? We invite you to join us throughout June as we continue our Spring Webinar Series. Each week, Dr. Elizabeth Stanton will moderate a conversation with Synapse experts about a pressing topic in the electricity sector. Visit our webinars page to register.