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  • Residential Retail Electricity Choice Plateaus // PJM’s Reliability Predicament // Lower Gas Prices to Lower Power Prices

Residential Retail Electricity Choice Plateaus // PJM’s Reliability Predicament // Lower Gas Prices to Lower Power Prices

Residential Electricity Retail Choice Plateaus

Participation in electricity retail choice programs has remained flat for the last few years according to new data from the Energy Information Administration. About 26% of eligible U.S. residential electric customers, or 13.2 million people, participated in their state's retail choice program in 2021, which remained relatively unchanged from 2019 to 2021.

“In states with retail electricity choice programs, customers can choose to purchase their electricity directly from a retail energy supplier rather than from their local utility,” reports the EIA. “Their local utility then delivers the purchased electricity to their home through the traditional power grid system. Retail choice programs differ from traditional utility services, where the utility both procures electricity for the customer (either by generating the electricity itself or by purchasing it from a supplier) and delivers it to the customer’s home.”

Thirteen states and the District of Columbia have active statewide or districtwide retail choice programs for residential customers. Four other states have limited retail choice programs mostly available to non-residential electric customers.

Ohio, Massachusetts, and California saw the most retail choice participation in 2021, while Illinois and Connecticut have seen large drops in retail choice participation rates over time.

PJM’s Reliability Predicament

In a recent report, electricity system operator PJM worries that the energy transition is coming too quickly for it to maintain reliability.

The main problem is that fossil fuel generation is retiring faster than PJM can replace it, just as electricity demand is beginning to increase.

And right now, PJM’s interconnection queue is made up largely of renewables. “Given the operating characteristics of these resources, we need multiple megawatts of these resources to replace 1 MW of thermal generation,” the grid operator reports.

PJM believes that up to 40 GW of existing generation—enough to power 30 millions households—are at risk of retirement by 2030. That’s 21% of PJM’s current installed capacity. Sure, the renewables in the queue have fat nameplate capacities, but according to the grid operator, the historical rate of completion for renewable projects has been about 5%. Even then, renewables are neither dispatchable nor reliable.

The Midcontinent Independent System Operator has been sounding similar alarms bells. But MISO often imports from PJM. “PJM typically generates a surplus of power owing to its large fossil-fuel fleet, which it exports to neighboring grids in the Midwest and Northeast,” reports the Wall Street Journal. “When wind power plunged in the Midwest and central states late last week, PJM helped fill the gap between supply and demand and kept the lights on.”

Now it appears PJM’s reserve margins are slimming down. “For the first time in recent history,” reads the report, “PJM could face decreasing reserve margins should these trends continue.”

PJM stretches into 13 states and serves 65 million people. Like ISO-New England last month, PJM dodged blackouts during the Christmas freeze by switching to oil. How long will we keep risking reliability for policies we’re not even sure will work?

Lower Gas Prices to Lower Power Prices

Power prices may finally climb downward this year after spending most of 2022 at high altitude. Electricity prices are closely coupled with natural gas prices due to natural gas generators’ prominence in the American electrical grid.

Moody's Investors Services has predicted that lower natural gas prices in 2023 will result in a 35-45% price drop on-peak power in most US electricity markets. California won’t be so lucky, as Moody’s expects it see a mere 9% decrease.

Moody's also said that PJM’s February capacity auction results, which saw a 15% fall in prices across most of the grid operator’s footprint, indicate a possible bottoming of capacity prices in PJM.

However, gas and power prices in the Western states will remain more resilient due to increased winter heating demand and gas pipeline constraints. “Natural gas prices in California, Oregon and Washington are around 80% higher compared to Henry Hub, leading to only a modest decline in Western US power prices for 2023,” the firm said, as carried in a piece by Utility Dive.

Despite Moody’s sunny outlook, the EIA anticipates a 14% increase in LNG exports to Europe this year, with another 5% increase forecast for 2024. This could put upward pressure on gas prices, and thus power prices.

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Conversation Starters

  1. The UK is launching a competition for advanced nuclear reactors. “British finance minister Jeremy Hunt said he would boost investment in nuclear power by launching a competition for small modular reactors (SMRs), such as those being developed by Rolls-Royce , and funding if the technology proved to be viable,” reports Reuters. “Britain aims to replace its ageing nuclear power stations as all but one of the plants, which generate around 13% of the country's electricity, are due to close by 2030.”

  2. A massive LNG project is shaping up on the Canadian West Coast. “Near the tiny seaside fishing town of Kitimat on the coast of British Columbia, a colossal project is taking place that will profoundly alter the global liquefied natural gas market,” reports Bloomberg. “Billed as the largest private-sector construction project in Canada’s history, the estimated C$40 billion ($29 billion) development includes a liquefaction plant, pipeline and gas drilling. Even after four years of construction, and with 9,000-ton LNG modules now rearing up amid the cloudy, forested landscape, completion isn’t scheduled until the middle of the decade.”

  3. Australia may have to curtail its LNG exports to make it through the winter. “Australia's east coast liquefied natural gas (LNG) exporters may need to divert excess gas supply for domestic customers to stave off any potential supply shortages this winter in the country's south,” reports Reuters. “Despite increased production commitments from the industry since last year, the supply in southern Australia is declining rapidly, raising risks of near-term shortages and long-term supply gaps, the Australian Energy Market Operator (AEMO) said.”

Crom’s Blessing