The Kobiona Monitor

Volume 3 / Number 5 May 27, 2021

Kobiona’s leadership has enlisted the help of our Market Intelligence Desk to craft this monthly publication to share major market dynamics impacting future power and gas prices. As every client’s situation is unique, we encourage you to review market movements with us to decide whether any action on your part could serve to lower your future costs or avoid known, coming increases.

PJM Announces Capacity Auction Schedule; Conducts First Auction Since 2018
After several postponements, from May 19th through May 25th, PJM (the independent system operator responsible for the Mid-Atlantic region, the largest in the U.S.) conducted its Base Residual Auction for capacity resources (power generation) for 22/23 (starting June 2022). Capacity prices from June 2022 onward have been unknown to date as the planned auctions have been delayed. Results are to be published on June 2, 2021.

Customers in supply contracts that go past June 2022 should examine how capacity was treated in those agreements. Most often, baseline costs were used and adjustments will likely be made/passed through once actual results are known. Some suppliers may have fully-fixed future costs. We would be happy to review your agreement to help you determine what your actual costs will be.

Moving forward, the following timetable has been stable for future delivery years:

– December 2021: 2023/2024 Delivery Year

– June 2022: 2024/2025 Delivery Year

– January 2023: 2025/2026 Delivery Year

– July 2023: 2026/2027 Delivery Year

Map of USA

The years of delays were largely driven by disagreement by constituents as to whether the highly-controversial MOPR (Minimum Offer Price Rule) was to remain in effect or not. Ultimately it was decided that MOPR would apply for this auction, but not for the next. As a result of that decision, Dominion Energy elected to pull its 17 GWs of investor-owed utility load out of the auction and procure resources to supply it through the FRR, or Fixed Resource Requirement. 

If you’d like a recap of the auctions results prior to next month’s edition, please shoot us an email or contact us via Chat. 

More about the PJM Market and these auctions:
PJM website: https://learn.pjm.com/three-priorities/buying-and-selling-energy/capacity-markets

Utility Dive: https://www.utilitydive.com/news/pjm-proposes-to-end-ferc-mopr-policy-that-raised-prices-for-state-subsidize/599248/

California Direct Access Lottery Deadline Approaching
If you have facilities in California not already on competitive supply, we encourage you to be placed on the 2022 Direct Access waitlist. In the past, legacy Direct Access customers realizedmeasurable savings in this program.

Please reach out to us as soon as possible with interest as our deadline for accepting submissions is Monday, June 7th

San Francisco bridge

EIA’s Short-Term Energy Outlook Reflects Weak Natural Gas Storage
Among other insights, the EIA’s Short Term Energy Outlook offered an interesting revision – they moved their end-of-season natural gas inventory estimate down from 3.75 Tcf in March to only 3.6 Tcf.

As of the May 20th report, the U.S. had 2,100 Bcf in inventories, 391 less than a year ago this week and 87 (4%) below the 5-year average of 2,187. Prior to mid-February’s historic weather events, inventories had held steady at 7% above the 5-year average for quite some time.

Graph of 5 year gas in underground storage

The two key factors supporting this storage deficit are weak injections year to date and a robust LNG export market to Europe and Asia where demand is strong.

EIA Weekly Gas Storage graph

Asia LNG Imports graph

Global LNG Supply and Demand YoY Variance graph

Source: Cheniere Energy

Access all highlights: https://www.eia.gov/outlooks/steo/report/index.php

In its May 2021 Supplement, Summer 2021 Electricity Industry Outlook, the EIA is also forecasting real-time index prices to exceed those of last summer, mores in CA and TX than elsewhere.

Graph wholesale electricity prices

Access the full publication: https://www.eia.gov/outlooks/steo/special/summer/2021_summer_electricity.pdf

Impact on Forward Power Prices
Price support for natural gas has moved power futures up significantly off the historic lows of a year ago. Here’s a look at different regions around the country on how much power (only) prices have moved up in the last six months. These power-only figures do not include costs such as capacity, RPS, ancillaries, etc.

Graph of Forward Power Price Trends for 6 months

Source: Constellation

We continue to strongly encourage all clients looking at flat budgets or any budget drops for subsequent terms to secure those positions as soon as possible, regardless of of contract end date. 

Questions? For those tasked with procuring power and gas for the first time — or the tenth time — the industry can seem overwhelming with densely-technical and sometimes conflicting information. We welcome your questions on how to apply our observations, as well as your feedback on The Kobiona Monitor. Please share how we can make this publication more useful by calling us on 844-209-7972, or contacting us via email, info@kobiona.com.