Top 3 themes shaping U.S. power markets
Three primary factors are shaping 2019 electricity markets. As Direct Energy Business President John Schultz explains, the key to what’s influencing price goes back to basic principles of supply and demand. Tune in below for his evaluations and predictions.
Consumers are using less power
For the last 110 years, energy consumption in the United States has pointed in one direction: up. But over the last eight years, consumption has flatlined and even decreased.
“It’s to a point where the last full year we had on record, 2017, consumption was actually equal to what we consumed in 2010,” says Schultz.
Metaphorically speaking, the grid is shrinking – and it figures to continue given the rise of energy efficiencies and renewables.
“This [decline in consumption] is a result of a decade of investment in behind-the-meter solar, which is shifting load off the grid,” Schultz notes, “And also energy efficiency initiatives. We are spending something close to $40 billion annually on energy efficiency so that investment is starting to make a material impact.”
Energy is inexpensive
A second theme is falling energy prices, which experts trace back to the impact of decreasing power demand, cheaper gas prices and higher quantities of zero marginal cost renewable generation.
Schultz cites one eye-opening stat that further illustrates just how low electricity prices have fallen in some of the largest cities in the U.S.:
“Energy is cheap almost everywhere, almost all the time. If you look at the five largest metropolitan cities in the U.S., and you looked over the past year, the prices of electricity every hour would be about three cents per KWh. That’s pretty cheap electricity in some of the major metro centers.”
Subsidized energy generation
In theory, generators in a free energy market that struggle to earn a reasonable rate of return would shrink and perhaps eventually disappear. What we’re seeing in reality, however, is an increasing number of energy generators seeking subsidies to support their bottom line.
“We see it in wind. We see it in solar. We see it in nuclear. We even have the current administration vying to have subsidies for coal use,” Schultz says. “The promise of deregulation 20 years ago was we were going to regulate all this, have competition at the generation segment, and then we were going to have cheap power.”
Now, in 2019, Schultz believes energy experts got about half of that right: “We certainly have cheap electricity, but we don’t necessarily have a really well functioning market.”
Looking ahead to the next five to seven years, energy subsidies aren’t just here to stay – they will likely grow. Electricity generators such as PJM, the country’s largest organized wholesale power market, are exploring not whether to accept subsidies, but guidelines for how to use them. Such discussions further illustrate that power market simply aren’t working as well as they could be.
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