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Amid a Pandemic, Green Electricity Charts a Course Forward

Essential Energy Insights - September, 2020

Bull market leaves US utilities behind in August

Rate case activity slips, COVID-19 proceedings remain at the forefront in August

Utilities, midstream reckon with energy transformation on the horizon


Amid a Pandemic, Green Electricity Charts a Course Forward

Highlights

Demand losses compress merchant spark spreads in an unprecedented second quarter.

Reserve shortages developing in key markets.

Emerging storage sector could address both resource adequacy and green mandates

Demand losses compress merchant spark spreads in an unprecedented second quarter

Demand losses associated with economic contraction and pandemic mitigation measures impacted spark spreads during the second quarter, a period when spark spreads are seasonally weak to begin with. Virtually every market had spark spread declines, with key power hubs trading in single digits. MISO Indiana Hub saw the highest spark spreads in the Eastern Interconnect, as tightness in generation makes its presence felt. PJM Western Hub also saw adequate spreads despite a highly competitive generation landscape. Northeast hubs continued to see low and declining spark spreads as renewable energy expands into these markets. Western U.S. hubs, typically impacted by peak hydro availability, saw spreads fall still further due to pandemic impacts.

Renewable Portfolio Standards call for an aggressive ramp up of green energy

Through the end of 2024, Market Intelligence projects significant shifts in the U.S. electric generation fleet:

• New gas generation totaling 34 GW may be needed to address shortfalls over the next two years, along with 6 GW of storage capability

• Coal and nuclear retirements will remove 60 GW of capacity from the market, with 36 GW currently announced

• RPS standards indicate nearly 95 GW of installed wind and solar capacity will be added, with firm new construction to date estimated at 27 GW

Reserve shortages developing in key markets

While demand reductions from the pandemic could ease generation shortages in the near term, several markets are retiring capacity more rapidly than they can build it back for resource adequacy purposes. These include:

• ERCOT – While lower loads give the region some time, solar and storage development will need to expand quickly to address tight reserves by the summer of 2021;

• CAISO – Policymakers continue to struggle with how to fill gaps left by retirement of legacy peakers in southern California this year and next, eyeing storage as part of the solution;

• MISO Zones 6-7 (Indiana and Michigan) – Utilities have embraced coal retirements, offset by wind and solar construction. However, the market could see a supply squeeze as early as summer 2021

Power Forecast Model

The above analysis is based on projections made by our quarterly Power Forecast model which tracks and forecasts power prices in U.S. regional power markets to support your valuation of fossil fuel and renewable assets. Our model has recently been enhanced to include hourly and daily forecasts so that you can get even more conclusive insights to make decisions with confidence. Take our interactive tour below to learn more.

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Slice of the Sun: Prospects and Challenges for Behind the Meter Solar

Watch On Demand

Essential Metals & Mining Insights July 2020

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