US energy consumers paid $14 billion more last winter

Tuesday, May 27, 2014

U.S. consumers paid $14 billion more for their energy needs during the winter of 2013-2014 compared to the previous winter, according to a report by the U.S. Energy Information Administration.

The cost of energy affects people and businesses across the country.  Consumers are affected by both the price they pay per unit of electricity or fuel for transportation and heating and the volume of each energy commodity they demand.  In much of the U.S., demand for energy increases during winter months.  The winter season often sees prices increase as well, as more expensive supply is needed to meet consumer demand.

The winter of 2013-2014 was no exception, according to the EIA's data.  U.S. consumers spent $14 billion more for energy during the fourth quarter of 2013 and first quarter of 2014 compared to the previous winter.  This amounts to an increase of 4.4%, or a 0.1% increase when measured as a share of disposable income.

The biggest drivers of the increase in consumer energy costs were higher expenditures for electricity, natural gas, heating oil and propane.  Electricity expenditures increased $7.9 billion, or 10%, last winter compared with the previous winter.  Much of the increased cost of electricity came as a result of increased costs for natural gas, a key fuel used for electric power generation.  Constraints on interstate natural gas pipelines drive fuel prices up as demand increases.  Throughout much of the northeast region, interstate natural gas pipelines reach their maximum flow rates on an increasing number of winter days.  When the pipelines begin to fill, the price of natural gas delivered into the constrained region increases.  Ultimately, when the pipelines have reached their maximum capacity, no more natural gas can be bought at any price.

The price of natural gas also affects consumers directly, as consumers also rely upon natural gas for space heating and applications like drying.  EIA's data show that consumer expenditures for natural gas increased by $5.8 billion, or 16%, last winter compared with the previous winter.

Expenditures for the other major heating fuels -- oil and propane -- also increased by $6.0 billion, or 27%, over the previous winter.  As EIA notes, heating oil and propane are used predominantly for space heating and are used to heat a relatively small number of homes, but their use is concentrated in the Northeast -- the area of the country that experienced the coldest weather this winter.  Propane consumers experienced not only price spikes but even shortages during the coldest parts of the season.

As costly as the past winter was, the increase in consumer energy costs would have been even higher if transportation-related costs had not decreased significantly.  In fact, transportation accounts for the largest single share of U.S. consumers' energy budget -- often over two-thirds of energy expenditures during the summer driving season, and over half of energy expenditures even in the winter.  But transportation fuel expenses decreased by $5.8 billion, or 3%, last winter compared with the previous winter.  EIA cites reductions in demand for gasoline due to winter storms that reduced driving.

Weather is a significant factor affecting winter energy costs -- but policies and infrastructure also play major roles in shaping consumers' energy expenditures.  What will next winter bring?

Court overturns FERC Order 745 on demand response

Friday, May 23, 2014

A federal appellate court has overturned the Federal Energy Regulatory Commission's key ruling on demand response -- when electricity customers respond to signals about the scarcity of electricity by temporarily reducing their consumption -- and how it should be compensated.

A smart grid technology, demand response can be a key tool in reducing the cost and environmental impact of society's electricity needs.  In most US markets, as the demand for electricity rises (such as during a summer heat wave), grid operators turn to increasingly expensive generating units for new supply to meet that demand.  Those "peaking" units -- used primarily to supply energy during times of peak demand -- are thus relatively expensive.  In many cases, they also rely on fuels like oil that lead to increased emissions of pollutants and carbon dioxide.

Demand response offers an alternative solution.  Customers participating in demand response programs agree to reduce their consumption of power from the grid when so instructed by the grid operator.  For example, an office building might commit to temporarily reduce its air handling load, or a factory to reduce or pause its manufacturing operations.

This can provide much the same benefits as generation, by balancing electricity supply and demand, for a lower cost than generation solutions and without causing incremental air emissions.  Demand response can also avoid the need to develop new or upgraded transmission lines, because it solves the problem through reduced energy flows.  Demand response programs therefore provide benefits to the entire grid, and have been established by both organized wholesale markets and vertically integrated utilities across the country.

While demand response's value to the grid is clear, how to compensate customers for their curtailment remains a key question.  In 2011, the Federal Energy Regulatory Commission issued a landmark order known as Order No. 745.  In Order No. 745 (116 page PDF), the Commission ruled that organized wholesale energy market operators must pay demand response resources the market price for energy, known as the locational marginal price (LMP), when those resources have the capability to balance supply and demand as an alternative to a generation resource and when dispatch of those resources is cost-effective.  Order No. 745 thus represented a major step forward for both demand response providers as well as all customers in markets with demand response program.

But some energy industry associations did not like the rule, and challenged the legality of Order No. 745.  The Electric Power Supply Association appealed the Commission's order to a federal court.  Meanwhile, other groups supported the rule, including industrial energy consumers and environmental advocates.

Today the D.C. Circuit Court of Appeals agreed with the appellants, holding that the Commission overstepped its jurisdictional bounds by encroaching on the states’ exclusive jurisdiction to regulate the retail market.  The court ruling, issued in the case Electric Power Supply Association v. Federal Energy Regulatory Commission (44-page PDF), vacates Order No. 745 and remands it back to the Commission.

If the Commission is to require fair compensation for demand response providers, it will have to find a new way to do so -- and one that would survive renewed judicial challenge.  In the meantime, grid operators are faced with a challenge (and an opportunity): whether and how to revise the way they pay customers for demand response.  As demand response's value remains beyond debate, the economic and environmental pressures that led to Order No. 745 remain strong, so expect this issue to continue to play out over the next year.

Propane: winter shortages in 2014

Friday, May 16, 2014

Propane is widely used as a fuel -- but shortages this past winter led to an unprecedented emergency in the eyes of federal regulators.

Propane is a hydrocarbon produced as a byproduct from natural gas processing and crude oil refining.   Also known as liquefied petroleum gas, this natural gas liquid serves as a fuel in homes, businesses, and industry.  It is used for heating, cooling, cooking, motor vehicle transportation, and agriculture.  In the U.S., propane is transported on a network of pipelines stretching 56,000 miles long, and can also be shipped by rail and by truck.  In recent years, the U.S. propane industry has reached $10 billion in annual activity, with consumers using 15 billion gallons of propane annually for home, agricultural, industrial, and commercial uses.

A marker showing the location of an underground natural gas pipeline near Memphis, Tennessee.
This past winter, a propane shortage affected 24 states, primarily in the Midwest and Northeast regions.  Stored supplies of propane declined in the Midwest, and prices in some places increased by over 50% between January and February 2014.  As forecasts called for continued unseasonably cold weather, local, state, and federal agencies declared states of emergency.  The Federal Motor Carrier Safety Administration issued and extended emergency exemptions to provide regulatory relief for commercial motor vehicle operations directly supporting the delivery of propane and home heating fuels to areas under emergency, ultimately resulting in Congress's enactment of the Home Heating Emergency Assistance Through Transportation Act of 2014.

While the Federal Energy Regulatory Commission regulates neither propane as a commodity nor its storage or marketing, the Commission does regulate the transportation of propane on pipelines.  As this past winter's crisis deepened, some pipelines serving the Midwest voluntarily filed for permission to flow more propane into the region, but this was insufficient to meet demand.

In an unprecedented move, the Federal Energy Regulatory Commission exercised its emergency powers under the Interstate Commerce Act to require a pipeline company to temporarily provide priority treatment to propane shipments from Mont Belvieu, Texas, to locations in the Midwest and Northeast to help alleviate the shortage of propane supplies in those regions.  Citing school closures due to lack of heat, price hikes leading states to provide emergency heating assistance to those who could not afford fuel costs, and economic impacts on chicken farmers, pig farmers, and dairy farms in the South and Midwest who use propane to maintain the livelihood and health of their stock, the Commission found that an emergency existed requiring immediate action.

To address the emergency, the Commission targeted a pipeline owned by Enterprise TE Products Pipeline Company, LLC. In a February 7, 2014, Order Directing Priority Treatment, the Commission required the pipeline company to prioritize the shipment of propane on its natural gas liquids pipeline from the Mont Belvieu hub into the Midwest and Northeast.  That initial order provided for priority treatment for 7 days, which was extended once for another 7 days.

These actions apparently relieved the emergency.  According to testimony provided to the U.S. Senate Committee on Energy and Natural Resources by Commission staff member Nils Nichols, "no further action by the Commission with respect to propane supply was required this past winter."

Will propane again be in short supply next winter?  Will markets respond to align supply and demand at a reasonable price?  Will further regulatory action affect the U.S. propane industry?

U.S. natural gas to pass coal as electricity fuel in 2035

Thursday, May 15, 2014

Coal will continue to fuel the largest share of electricity generated in the U.S. until 2035, when natural gas will surpass it, according to a recent federal report.

The U.S. Energy Information Administration's 2014 Annual Energy Outlook presents a long-term forecast of energy supply, demand, and prices from the present through 2040.  Its scope includes predictions about shifts in the portfolio of types of electricity generating resources used to produce power.  The largest such trend projected in EIA's 2014 report is that the market share of coal and nuclear generators will likely decline over the next two decades, as natural gas-fired and renewable electricity sources grow in prominence.

Historically, coal has fueled the largest share of electricity generated in the U.S.  Typically operating as baseload generation, coal has traditionally been a relatively low-cost fuel for electric production.  Coal's share of the electricity mix peaked in 2007, at 49% of all electric power generated.  Since then, coal's share has declined; in 2012, coal-fired generators produced 39% of all electricity generated by utilities -- still the largest piece of the generation portfolio, despite a significant decline.

Coal's role in the nation's energy mix is under challenge from multiple fronts.  Economically, the increased availability of lower-cost natural gas has made coal less competitive.  Meanwhile, tighter environmental regulations -- such as the U.S. Environmental Protection Agency's Mercury and Air Toxics Standards, or MATS rules -- have placed additional pressure on coal plant operators to either invest in upgraded environmental controls or shut down.

At the end of 2012, 310 gigawatts of coal-fired generating capacity was available to run in the U.S.  Of that, EIA projects that 50 gigawatts will be retired by 2020 under its base case model.

Under EIA's model, natural gas will grow its market share while coal declines.  EIA projects that 70% of all new capacity added before 2040 will be fueled by natural gas.  If EIA's assumptions hold, natural gas will surpass coal as a fuel for electricity generation in 2035.

While EIA's model rests on a series of assumptions, all of the alternative cases examined by EIA assume that coal-fired capacity will be retired, while natural gas-fired and renewable generation will grow.  What will the future hold for the U.S. energy mix?

EIA releases 2014 Annual Energy Outlook

Wednesday, May 14, 2014

The U.S. Energy Information Administration has released its annual report projecting long-term trends in energy markets.

The Energy Information Administration, or EIA, is the statistical and analytical agency within the U.S. Department of Energy.  Its 2014 Annual Energy Outlook (269-page PDF) presents long-term annual projections of energy supply, demand, and prices focused on the U.S. through 2040. Based on data-driven models, the report considers a reference case under which it assumes current laws and regulations remain unchanged, as well as alternative cases that explore important areas of uncertainty for markets, technologies, and policies in the U.S. energy economy.

The report's biggest findings include projections that:
  • Growing domestic production of natural gas and oil continues to reshape the U.S. energy economy, largely as a result of rising production from tight formations, but the effect could vary substantially depending on expectations about resources and technology.
  • Industrial production expands over the next 10 to 15 years as the competitive advantage of low natural gas prices provides a boost to the industrial sector with increasing natural gas use.
  • There is greater upside uncertainty than downside uncertainty in oil and natural gas production; higher production could spur even more industrial growth and lower the use of imported petroleum.
  • Improvement in light-duty vehicle (LDV) efficiency more than offsets modest growth in vehicle miles traveled (VMT) that reflects changing driving patterns, leading to a sharp decline in LDV energy use.
  • Evolving natural gas markets spur increased use of natural gas for electricity generation and transportation, as well as expanded export opportunities.
  • Improved efficiency of energy use in the residential and transportation sectors and a shift away from more carbon-intensive fuels such as coal for electricity generation help to stabilize U.S. energy-related carbon dioxide (CO2) emissions.
The full report includes a series of specific projections -- for example that most new electricity generation capacity added will use natural gas or renewable energy, that solar photovoltaic and wind will dominate new renewable capacity.  The report also projects that through 2040, energy use per capita decreases, largely due to gains in appliance efficiency, a shift in production from cooler to warmer regions, and an increase in vehicle efficiency standards.

How will EIA's projections fare over the coming years?

Obama administration releases National Climate Assessment

Tuesday, May 13, 2014

The Obama administration has released its third National Climate Assessment, a document designed as a public presentation of the administration's comprehensive scientific assessment of how climate change is impacting the U.S. people and economy.

A view from the Lincoln Memorial to U.S. Capitol, in Washington, D.C.

The National Climate Assessment summarizes the impacts of climate change on the United States, now and in the future.  Produced as a collaboration between over 300 experts guided by the 60-member National Climate Assessment and Development Advisory Committee, the report was extensively reviewed by the public and experts, including federal agencies and a panel of the National Academy of Sciences.

The National Climate Assessment has a broad scope, in terms of both types of impacts and regions covered.  Thematically, it analyzes impacts on seven sectors – human health, water, energy, transportation, agriculture, forests, and ecosystems – and on the bigger-picture interactions between these sectors.  Geographically, the report also assesses key impacts on all U.S. regions: Northeast, Southeast and Caribbean, Midwest, Great Plains, Southwest, Northwest, Alaska, Hawai'i and Pacific Islands, as well as a more general look at coasts and oceans.

The report states that that increased scientific scrutiny has led to "increased certainty that we are now seeing impacts associated with human-induced climate change":
While scientists continue to refine projections of the future, observations unequivocally show that climate is changing and that the warming of the past 50 years is primarily due to human-induced emissions of heat-trapping gases. These emissions come mainly from burning coal, oil, and gas, with additional contributions from forest clearing and some agricultural practices.
Outcomes predicted under possible future scenarios include continued increases in average air and water temperatures, changes in rainfall and precipitation patterns, air quality decreases, sea level rise, and ocean acidification.  These changes can disrupt systems for food production, harm human health, or damage property and risk safety through flooding.

The National Climate Assessment also summarizes options for responding to climate change.  These include mitigation: reducing the amount and speed of future climate change by reducing emissions of heat-trapping gases or removing carbon dioxide from the atmosphere.  Efforts to limit emissions or promote carbon sequestration are considered mitigation efforts.  Other possible responses focus on adaptation: preparing for and adjusting to new conditions -- for example, building levees and seawalls, or promoting farmers' growth of crops more suitable to the changing conditions.

In all, the report provides insight into the Administration’s approach to addressing climate change, and can help people and businesses both minimize risks and identify new opportunities.

The full National Climate Assessment can be explored on the government's climate change website globalchange.gov, or can be downloaded.  The entire report, downloaded in print quality resolution, clocks in at over 170 megabytes.

Cybersecurity, solar energy and the electric grid

Monday, May 12, 2014

A group of Russian hackers claims to have identified security gaps in widely-used solar panel monitoring software.  The monitoring platform's developer is said to be fixing the gaps -- but can hackers damage the electric grid?

Solar panels supporting Goblin Valley State Park, Utah.
German company Solare Datensysteme GmbH makes a series of devices to track and monitor solar panel performance.  Its "Solar-Log" product line monitors the performance of solar photovoltaic systems and uses an internet connection and software to offer users additional management tools.  According to the company's website, Solar-Log systems manage roughly 229,300 solar plants that producing an aggregate average of 5.66 terawatt-hours (TWh) per day.

According to an article on tech website The Register, a Russian hacking firm known as Positive Security has warned that the previous Solar-Log software was vulnerable to malicious cyberattacks that could cause power grid reconfiguration and cascading blackouts.  The article claims that attackers could download and modify Solar-Log configuration files without needing propert authentication.  Files could be compromised to change user passwords and run code provided by the attacker.  The article suggests that malicious hackers could manipulate "specific power-generation related values", letting users could overstate the amount of power pumped back into grids by their solar installations.

The exact details of the weaknesses identified by Positive Security is being kept secret until the Solar-Log maker can distribute a patch shoring up system security.  As with past bugs, it is likely that Solare Datensysteme and other product makers will continue to plug holes in their cybersecurity, as new flaws are exposed and as systems evolve.  But solar panel monitoring systems are not the only energy-related infrastructure vulnerable to hacking; items ranging from utility smart meters to utility-scale power generator controls may be at risk of compromise from outside forces.

A series of regulations are designed to protect the grid against these threats.  The Federal Energy Regulatory Commission has approved mandatory cybersecurity reliability standards for the U.S. bulk power system.  Acting under its authority pursuant to the Energy Policy Act of 2005, through Order No. 706 the Commission has approved a series of Critical Infrastructure Protection (CIP) cyber security reliability standards proposed by electric reliability organization North American Electric Reliability Corporation (NERC).  Both NERC and the Commission continue to evaluate further changes to those standards, along with other standards bolstering the physical security of the electric grid.

New cybersecurity threats crop up regularly, prompting product developers, service providers, and regulators to engage in a continual effort to identify, block, and protect against threats to the electric power system.  For developers of energy technologies or projects, compliance with key regulations is a critical element of this protection, as is taking a proactive view to ensure safe and reliable operations.  While it is hard to predict the next front in this war, count on it to be ever shifting.