Three Key Challenges for Today’s Electricity Market

Guest commentary

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As we continue to move through 2017, utility operators are anxiously waiting to see which energy regulations the new US administration will implement this year. While President Trump has repeatedly indicated that he plans to lend his support to the fossil fuels sector, interest remains high in the US and elsewhere in renewable resources and pursuing cleaner energy.

What this suggests is that, regardless of the potential political developments in the near term, the power industry will likely continue to transition to “new” energy sources and away from coal. For instance, the Energy Information Administration (EIA) reported that in 2016, more than 60% of new utility-scale capacity additions were renewables-based, with wind accounting for 8.7 gigawatts and solar totaling 7.7 GW. Another 33%, or 9 GW, came from natural gas.

The trend is expected to continue. However, the shift to the new age energy markets comes with several challenges for utility managers, traders, and, ultimately, the entire grid to address.

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Challenge #1: The Crucial Link Between Power Prices and Natural Gas
As the US continues to move from coal to natural gas and renewable energy resources for power generation, wholesale electricity prices will be affected. Parts of the country are beginning to produce more renewable energy, such as with wind plants in the Midwest and solar generation in the West. However, natural gas is rapidly becoming the primary driver in the market, serving as the single leading generation input.

In fact, according to the Energy Information Administration, the amount of electricity generation fueled by natural gas in 2016 surpassed coal on an annual basis for the first time. The cost of natural gas is now the main influencing factor over wholesale power prices in many markets. On the “clean” side of the equation, even though gas is a fossil fuel, it’s widely held up as much more environmentally friendly than coal-burning plants are.

Now, although both commercial and residential end users have enjoyed lower electricity prices recently, they shouldn’t necessarily become accustomed to them—both power and natural gas prices may increase this year and next, influenced by exports of natural gas and higher domestic consumption. Export growth will be impacted by additional natural gas capacity coming online from new pipelines and plants in the years ahead, such as Cove Point LNG, Cameron LNG, and Freeport LNG.

As a result, it’s becoming more critical than ever to monitor and manage gas prices and supply levels amid today’s rapidly evolving market.

Challenge #2: Transmission Congestion Issues
The increase in the overall power production from renewable energy mixing with traditional resources may pose a challenge as grid operators continue striving to avoid congestion. The US power grid is designed for generally predictable amounts of energy, and it has become accustomed to the relative stability that coal, natural gas, and nuclear power tend to provide.

However, even as natural gas production is expected to grow over the next several years and increase generation overall, renewable energies, such as wind and solar, are also playing larger roles in the power market. For instance, given the improvements in technology and manufacturing, and aided by substantial tax credits, the cost of wind turbines has become more favorable, which has boosted interest in wind infrastructure.

However, wind and solar aren’t as predictable as natural gas or coal, considering that they can vary markedly depending on the season and the weather. When transmission lines with a regular stream of energy from gas and coal meet with an influx from wind and solar, they run the risk of becoming overwhelmed. To avoid this scenario, operators must work even harder than they already do to match supply and demand and avoid congestion-driven outages.

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Challenge #3: Managing Supply and Grid Stability
Achieving grid stability in the future is likely to require a transition from human-based data management to advanced information technology systems—a “smart grid” that can cope more readily with the variability of wind and solar.

However, a smart grid brings other challenges, not the least of which is the security of the system. As is well known, hackers frequently attack today’s technology platforms looking for weak spots, and that includes power systems. As with any technology, the smart grid may alleviate one problem, but simultaneously bring new risks.

Of course, ensuring grid stability is dependent not only on the technology supporting it, but also on the input source, whether that’s natural gas or the sun. Power companies of today need to be prepared for short-, medium-, and long-term shifts or shortages in order to ensure they’re meeting customer demand, while also dealing with potentially greater threats.

Navigating the Challenges in 2017
Although it may be difficult, it’s certainly not impossible for power companies to manage and even excel amid these challenges, as a variety of technologies exist that can assist in monitoring critical data and industry trends. By using a dedicated system to aggregate, adjust, and analyze the variables that can affect a business, energy executives can stay ahead of the competition and the challenges they’re facing.

With the right information management software solution, it becomes far easier to optimize purchases, contracts, capacity, and visibility for a power company. Enhancing operational controls and gaining trading insights in the power market allows companies to better manage risk, account for supply-and-demand fluctuations, and increase their overall profitability.

There’s little choice really. Because sitting by idly as the world needs more energy, and seeks it from new sources, isn’t going to be an option. BE_bug_web

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