Workshop L 2020 Energy Market … A Deep Dive into the Trends Shaping Energy Markets for the Decade Ahead Tuesday, February 18, 2020 1:45 p.m. to 3 p.m.
Biographical Information Evan Howell Director, Market Analytics Practice AEP Energy 225 West Wacker Drive, Suite 600 Chicago, IL 60606 312-488-2211 ehowell@aepenergy.com Evan began his energy career with AEP Energy in 2012 as a Financial Analyst. As he progressed through the Finance organization, he built out KPIs, reports and analyses that helped drive the rapid growth of the retail residential business. Moving to business customers, Evan ran a small business sales team before moving into a leadership role in the C&I sales organization where he was responsible for sales initiatives and market analytics. Most recently, Evan is a founding member of the management team of AEP Energy’s newly formed Services group. Evan and his team are responsible for delivering insights to customers via deep knowledge and insight into energy markets and rates. Evan is a graduate of Middlebury College with a BA in Geography and he also received an MBA from the University of California, Davis Graduate School of Management.
2020 Energy Market A Deep Dive into the Trends Shaping Energy Markets for the Decade Ahead Evan Howell Director, Market Analytics Practice AEP Energy AEP Energy is a competitive retail electric service provider and a competitive retail natural gas service provider and an affiliate of Ohio Power Company (AEP Ohio). AEP Energy is not soliciting on behalf of and is not an agent of AEP Ohio.
Way Back in 2010… AEP Energy is a competitive retail electric service provider and a competitive retail natural gas service provider and an affiliate of Ohio Power Company (AEP Ohio). AEP Energy is not soliciting on behalf of and is not an agent of AEP Ohio.
Looking Toward 2030… ? AEP Energy is a competitive retail electric service provider and a competitive retail natural gas service provider and an affiliate of Ohio Power Company (AEP Ohio). AEP Energy is not soliciting on behalf of and is not an agent of AEP Ohio.
Topics I. Last Decade – what happened II. Emerging Market Developments – PJM and Natural Gas – High Renewable Penetration III. The Evolution of Energy, Capacity and Transmission – What happens when the next kWh is free… – Capacity and other costs in a high VRE world IV. What to Watch – Fundamentals & Technicals to monitor – Evolving participation in the retail market AEP Energy is a competitive retail electric service provider and a competitive retail natural gas service provider and an affiliate of Ohio Power Company (AEP Ohio). AEP Energy is not soliciting on behalf of and is not an agent of AEP Ohio.
So What Happened? Source: EIA AEP Energy is a competitive retail electric service provider and a competitive retail natural gas service provider and an affiliate of Ohio Power Company (AEP Ohio). AEP Energy is not soliciting on behalf of and is not an agent of AEP Ohio.
So What Happened? Source: S&P Global Markets AEP Energy is a competitive retail electric service provider and a competitive retail natural gas service provider and an affiliate of Ohio Power Company (AEP Ohio). AEP Energy is not soliciting on behalf of and is not an agent of AEP Ohio.
The Decade in PJM 17% 36% 50% 24% Source: S&P Global Markets AEP Energy is a competitive retail electric service provider and a competitive retail natural gas service provider and an affiliate of Ohio Power Company (AEP Ohio). AEP Energy is not soliciting on behalf of and is not an agent of AEP Ohio.
The Decade in PJM Monthly average LMPs have cleared below $30/MWh since February 2019 AEP Energy is a competitive retail electric service provider and a competitive retail natural gas service provider and an affiliate of Ohio Power Company (AEP Ohio). AEP Energy is not soliciting on behalf of and is not an agent of AEP Ohio.
Big Picture Trends • California utility-scale renewables share of load 1 • 2010: 1% solar, 4% wind • 2018: 15% solar, 11% wind • New England estimates ~8% of summer load served by behind-the-meter solar 2 • PJM has a generation glut, spurred by continued natural gas build • Reserve margin (excess capacity): 29% summer, 43% winter 3 • Coal fueled 50% of U.S. generation in 2010, 24% in 1: S&P Global Markets 2: New England ISO – iso-ne.com 2019 4 3 PJM Summer and Winter Reliability Reports 4: EIA Annual Energy Report AEP Energy is a competitive retail electric service provider and a competitive retail natural gas service provider and an affiliate of Ohio Power Company (AEP Ohio). AEP Energy is not soliciting on behalf of and is not an agent of AEP Ohio.
Snapshot: ERCOT 2019 Source: S&P Global Markets AEP Energy is a competitive retail electric service provider and a competitive retail natural gas service provider and an affiliate of Ohio Power Company (AEP Ohio). AEP Energy is not soliciting on behalf of and is not an agent of AEP Ohio.
Snapshot: ERCOT Low LMPs For 712 Hours (>8% of the year), LMPs at ERCOT West Hub were < $5/MWh Source: S&P Global Markets AEP Energy is a competitive retail electric service provider and a competitive retail natural gas service provider and an affiliate of Ohio Power Company (AEP Ohio). AEP Energy is not soliciting on behalf of and is not an agent of AEP Ohio.
Low / Negative LMPs: Renewables • Price “Cannibalization” – Correlation Risk: • Renewable Energy Resources all building in resource rich areas • Lower LMPs with over-abundance of low/zero cost renewables – Merchant Risk: • After 10-20 year PPA concludes, Power producers left to find revenue in LMPs • LMPs driven down due to Correlation Risk • Congestion – Too much energy being produced in a single area and not enough “bandwidth” to get it out – Requires Transmission investment to relieve Congestion • CREZ – (Competitive Renewable Energy Zones) – Texas • Byron – Wayne line for Byron & Quad Cities – PJM • Over abundance of zero-cost resources in single area – Having reasons to overproduce / curtail AEP Energy is a competitive retail electric service provider and a competitive retail natural gas service provider and an affiliate of Ohio Power Company (AEP Ohio). AEP Energy is not soliciting on behalf of and is not an agent of AEP Ohio.
Snapshot: SPP 2019 Source: S&P Global Markets AEP Energy is a competitive retail electric service provider and a competitive retail natural gas service provider and an affiliate of Ohio Power Company (AEP Ohio). AEP Energy is not soliciting on behalf of and is not an agent of AEP Ohio.
Snapshot: SPP Low LMPs For 1,100 Hours (12% of the year), LMPs at SPP South Hub were < $5/MWh Source: S&P Global Markets AEP Energy is a competitive retail electric service provider and a competitive retail natural gas service provider and an affiliate of Ohio Power Company (AEP Ohio). AEP Energy is not soliciting on behalf of and is not an agent of AEP Ohio.
Low / Negative LMPs: Market • Declining Energy Costs – But with more spot volatility • Increasing Capacity Costs • Increasing Transmission Costs • Market Shift for “Energy Services” – Ancillaries / Frequency Regulation / Grid Stabilization – Demand Response – Energy Efficiency AEP Energy is a competitive retail electric service provider and a competitive retail natural gas service provider and an affiliate of Ohio Power Company (AEP Ohio). AEP Energy is not soliciting on behalf of and is not an agent of AEP Ohio.
Transmission Investment • NREL: Renewable Electricity Futures Study – 50% Renewable Penetration 40 Million MW-Miles ($3.5 Billion / Year) – 90% Renewable Penetration: 200 Million MW-Miles ($8.3 Billion / Year) • Brattles / WIRES: “ Additional Transmission Investment Need to Cost-Effectively Support Growth of Electrification in North America” – $30-90 Billion of incremental transmission by 2030 – $200-600 Billion of incremental transmission from 2030-2050 AEP Energy is a competitive retail electric service provider and a competitive retail natural gas service provider and an affiliate of Ohio Power Company (AEP Ohio). AEP Energy is not soliciting on behalf of and is not an agent of AEP Ohio.
Energy vs. Other Cost Components Ancilary Energy Capacity Transmission Services Generator Revenue Customer Bills • Cost drivers will evolve with costs – Time of use, peaks and coincident peaks will become increasingly important – Monthly peaks vs. annual peak (Dominion Virginia change) AEP Energy is a competitive retail electric service provider and a competitive retail natural gas service provider and an affiliate of Ohio Power Company (AEP Ohio). AEP Energy is not soliciting on behalf of and is not an agent of AEP Ohio.
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