Energy Management Strategies for a Volatile Energy Market: What New England Stakeholders Can Learn from Winter 2022’s Price Surges
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In January through February of 2022, New England’s spot natural gas prices at Algonquin City Gate climbed to $16.55/MMBtu, the highest combined average daily price settlement for these two months since winter 2014. With natural gas-fueled power plants establishing the clearing price for New England’s wholesale electricity market, the upward trend in natural gas prices also drove electricity prices to their highest point since 2014 at $149/MWh in January and $114/MWh in February. These consistently high daily energy prices diverged drastically from the historic lows set in recent winters, posing significant operational challenges for regional businesses already faced with surging raw material costs as supply chain problems persist.
With the war in Ukraine leading Europe into a potentially worsening global energy crisis, there is a growing need for businesses to understand the market fundamentals that caused New England spot energy prices to reach decade highs this winter. Developing an understanding of these concepts is critical for companies interested in designing energy cost containment strategies for future winter heating seasons since shifts in market fundamentals that impacted prices this winter are now driving up energy prices for future winter seasons. Currently, the full-value futures pricing for Algonquin Citygate sits at $21.23/MMBtu for winter 2022-23, up more than 75% since the start of November 2021.
Photo by Leonid Ikan
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FCA 16 Results: What Energy Users Need to Know
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ISO New England (“ISO-NE”), the independent system operator responsible for the electricity grid in New England, held Forward Capacity Auction (“FCA”) 16 on February 7, 2022. Clearing prices for most of New England were flat when compared to FCA 15, except for Southeast New England, which fell 34% to $2.639/kW-month. The auction clearing price for Northern New England and Maine was $2.531/kW-mo and the clearing price for the rest of the region, dubbed Rest-of-Pool, was $2.591/kW-mo.
The Forward Capacity Market (“FCM”) is one of several markets that ISO-NE manages. It is designed to guarantee that New England has sufficient electricity resources to meet consumer demand during all hours of the year, including during the hottest hours of the summer when electricity demand peaks. Each auction is held three years in advance of the Capacity Commitment Period (“CCP”) to which it will apply; the recent auction held this February is associated with the 12-month period starting June 1, 2025 and ending May 31, 2026.
In advance of the FCA, ISO-NE establishes certain market parameters that are used to structure how much capacity will clear the auction and at what price. The two key parameters are the net installed capacity requirement (“net ICR”) and the net cost of new entry (“net CONE”). The net ICR is based on future load forecasts and is essentially the amount of power resources New England is expected to need to maintain grid reliability under very high stress conditions three years into the future. This year the net ICR went down about 4% reflecting a lower peak load forecast, in part due to more energy conservation and small-scale solar generation. Net CONE on the other hand is assessed by analyzing the cost to develop new power generators in New England. For FCA 16 net CONE was $7.468/kW-month, a decrease from $8.707/kW-month in FCA 15, likely driven by economies of scale from larger gas turbines and lower capital costs. Decrease in both net ICR and net CONE set the stage for prices to decline in this year’s auction...
Photo by Roman Zaiets
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Save the Date for the CES Annual Seminar
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Though the temperatures are trending upward, our eye is on next winter, energy shortages, and the projected rise in commodity prices – and what it means for you. Our annual free online energy market seminar, titled “Winter & Preparing for Winter: The Two Seasons of New England Energy," will be held on Wednesday, May 18 from Noon – 1:15 p.m. and will cover timely topics relevant to the New England energy markets and to your business – and your budget.
Inflation, worldwide geopolitical tensions, and the associated energy crisis are on everyone’s radar these days. The unfortunate reality is that New England could be severely impacted by this crisis in the form of record high winter energy prices. Join CES Energy experts who will be on hand that day to cover top-of-mind energy topics, including:
- Energy Markets: A Look Back to 2021-22
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Worldwide energy shortage, global unrest, increased domestic production, and its impact on future New England winters and Energy Commodity Markets
- Future of electricity and renewables
- New England grid pathways and long-term planning
All seminar attendees are automatically entered into our Seminar Half-time AND End-of-Seminar Giveaways!
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CES to attend Connecticut ASBO's Vendor Day 2022
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Competitive Energy Services is proud to announce that we will be joining the Connecticut Association of School Business Officials (CT-ASBO) for the return of their annual Vendor Day this year. Vendor Day will be hosted on Thursday, April 28 at the Aqua Turf Club in Plantsville, CT, starting at 8:30 a.m. While on the vendor floor, be sure to stop by Booth 20 to speak with CES Senior Vice President, Energy Services, Keith Sampson, and Energy Services Advisor, Maggie Paul, about your energy goals and needs! For registration and additional event information, please visit the CT-ASBO website today. We look forward to seeing you there!
Photo provided by CT-ASBO
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If you have a pressing energy question, or would like to hear about a particular topic in a future edition of the CES Insider, please contact us on our website today. We look forward to hearing from you! |
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