Investigating the 2015 Summer Energy Outlook

By Vernon Trollinger, May 26, 2015, Careers/Jobs

Don't worry about getting in deep from this summer's energy bills.Courtesy of Morguefile.com

Don’t fear the deep end of this summer’s energy bills.
Image courtesy of Morguefile.com

With summer cooling already underway in the southern states, many consumers are already wondering what they can expect from their electricity bills this summer. We investigate and get a better handle on what you can likely expect by tearing apart the details in three areas: weather, demand and capacity, and fuel prices.

The Weather

The Energy Information Administration (EIA) reported on May 12, 2015 that the Short Term Energy Outlook (STEO) echoes the National Oceanic and Atmospheric Administration (NOAA) prediction for a warmer summer than last year . “U.S. cooling degree days during the summer months (April-September) of 2015 are projected to total about 6% more than the same period last year,” said the EIA. “Higher temperatures should lead to increased use of electricity for air conditioning.”

Map courtesy of NOAA

Map courtesy of NOAA

Before you start panicking, remember that this is a generalized assessment for the whole country and includes elevated temperatures along both the west coast and in the southeastern states. For most of the lower 48 states, there are equal chances (33% each) for below normal, normal, and above normal temperatures, including the upper midwest, the Appalacian states, and the mid-Atlantic. The Midwest and Texas are forecast to experience lower than normal temperatures.

Therefore, Pennsylvania and New York state residents can probably expect average summer temps because there’s no compelling model information signaling a trend in any particular direction.In short, the master of the obvious prediction seems most fitting: there may be some triple-H hot days, some not so hot days, and some cool days.

Texas, meanwhile, seems to be headed for a cooler and wetter summer. “Current trends favor weather conditions similar to those we saw in 2014,” said ERCOT Senior Meteorologist Chris Coleman. “We also may continue to experience somewhat wetter conditions, which is good news as long-term drought conditions continue to improve in much of the state.”

Demand and Capacity

Higher summer temperatures naturally cause increased use of air conditioning and therefore increased demand for electricity. Naturally, Pennsylvania and New York may see higher prices on hot days, or if a lasting trend to above normal temperatures develops. At present, the New York Independent System Operator (NYISO) is planning for “normal summer weather conditions”. Texas, meanwhile, will likely see less demand due to cooler temperatures. Again, the highest demand will likely be on the west coast, southwest, and in the southeastern part of the country (especially Florida).

Interestingly enough, the strengthening economy is starting to figure more into demand. According to the Federal Energy Regulatory Commission (FERC) summer assessment, “Regional electric system reserve margins are adequate, despite modest growth in load, which is primarily attributable to increased industrial activity.” Indeed, the EIA expects commercial and industrial demand to grow by 1.5% and 0.6%.

For Pennsylvania residents, the completion of the 500 kV Susquehanna-Roseland power line has reduced congestion and transmission costs in the northeastern part of the state. In New York, repowered generation projects and lower forecast demand have increased the reserve margins. In Texas, 4 gigawatts of new generation have come on-line, the Panda Temple 2 natural gas combined cycle project, the Goldsmith natural gas peaker project, and 2 GW of wind power.

Fuel

Both coal and natural gas are used to fuel most power plants. This spring, natural gas prices have been declining, and while they have since rebounded somewhat, summer prices are expected to remain below $3/mmBtu. As of this writing, the NYMEX Natural Gas contract for June is trading at $2.90. During this period last year, prices hovered around $4.35/mmBtu. The current low price makes natural gas highly competitive with coal, and especially attractive for co-firing plants that can burn coal or natural gas. While coal remains the dominant fuel nationally, EIA expects that the amount of electricity generated by natural gas will briefly rise to being just 3.5% less than the projected amount of coal-fired generation. The expected late summer demand rise and expected gradual increase in natural gas price will separate the two.

Natural gas production remains astonishingly high. Data from Baker Hughes shows operators reduced the number of rigs from June 2014 to April 2015 to slow dropping natural gas prices which fell 43% during that period. As of May 15, the EIA reported 223 natural gas rigs currently in operation. While some have warned that there are not enough rigs operating in all 4 major shale plays to continue the high production,EIA expects that gas production for 2015 will grow over the 2014 levels. For the week ending on May 15, 92 Bcf had been injected into storage, bringing storage levels to 59.0% above year-ago levels (remember that long, bitterly cold winter) and 1.7% below the five-year average for this week. To reach the five-year average peak value, average weekly injections through the end of October would need to be 77 Bcf. Last year, during each of the 28 weeks of the storage injection season, levels exceeded their five-year averages.

The Summer Outlook

STEO electricity pricesThe combination of moderate weather, adequate capacity, and low fuel pricing makes it very likely that you’ll get to enjoy somewhat lower energy bills this summer. Cool weather in Texas makes this very likely. While consumers in New York and Pennsylvania will probably have normal-ish summer weather, high prices from high demand will likely be off-set by better reliability, and lower priced fuels. Add to this a forecast for a below average hurricane season, and the lower threat to Gulf of Mexico natural gas production reduces jitters in those price futures.

With the possibility of lower prices this summer, you might want to keep an eye out for long term energy plans that let you lock-in a low fixed rate. EIA expects continued growth in average U.S. residential electricity prices, with increases nosing their way up by 1.6% for the remainder of this year and continuing on to 1.85 in 2016. Long term plans can save you from those increases, plus any unexpected spikes, as well.

Be Sociable, Share!

About 

A native of Wyomissing Hills, PA, Vernon Trollinger studied writing and film at the University of Iowa, later earning his MA in writing there as well. Following a decade of digging in CRM archaeology, he now writes about green energy technology, home energy efficiency, DIY projects, the natural gas industry, and the electrical grid.

Tags: , , , ,