Tuesday, June 13, 2017

Fossil Fueled Electricity Pie is Shrinking

Renewables are driving gas out of the dispatch curve in most major power systems across the US.  Out west, solar is the driver.  Everywhere else, it is primarily wind.  Renewables are benefiting from learning curves, price advantages, legislation, subsidies, growing awareness/favorability, and supporting technologies.  I think the hope for fossil fuels was that the pie itself (load) would also be growing.  The hope for natural gas was also based on some well known advantages over coal.  


The reality is a story of victimization by success combined with economic stagnation.

Wind is the pupil at the head of the class.  It is doing so well, especially in ERCOT and Southern Power Pool.  It has seen rapid installation and a steadily rising capacity factor.  

Here is one small illustration.  With large YOY increases in wind output, Southern Power Pool is generating more non-fossil power (mostly wind).  With wind averaging almost 12GW of output for the last four days (a big new record), the running 30 day average output for non-fossil fuels has held well above the prior year average all through 2017: 

and with gas taking less market share from coal, due primarily to price differential:

It will be hard for natural gas demand to rise to the levels seen in prior years under these circumstances, especially if total electric demand stagnates, which seems to be happening almost everywhere.

It will take special weather or something more dramatic (curtailment of the nuclear fleet?) to light a blue flame under natural gas at this point.  Supply is promising to overwhelm in Q3-4 as well (maybe that won't materialize?), so the $2's may be the new home for Henry Hub.  LNG is ramping up but it's slow and a known quantity.  Supply disappointment is most likely to come in the form of temporary delays, so a price catalyst may be lacking for a while.