Commodities 2022: Electricity prices in the southeast could fall at the end of the year with policy, supply changes

Highlights

Southeast energy exchange market in transition

Vogtle nuclear power plant starts in the third quarter

Power, gas strikers weaker in the second half of the year

Four states want to shut down 3.6 GW of coal

The planned southeast energy exchange market brings uncertainty about the development of electricity prices and investments in the region in 2022, but the futures markets suggest that new capacities will be created in the second half of the year, possibly due to solar growth and the commissioning of the new Vogtle Block 3 nuclear power plant .

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SEEM builds on the existing bilateral trade by establishing a new platform that brings together buyers and sellers of excess electricity. A third-party analysis estimated that SEEM would save 50 million consumers more than $ 100 million annually by 2037 while promoting renewable energy and energy storage.

Fourteen utility companies, including Southern Company, two Duke Energy subsidiaries, and the Tennessee Valley Authority, submitted the proposal, which went into effect automatically on October 12th due to a 2-2 shutdown by the Federal Energy Regulatory Commission. On December 13, the FERC rejected two sample requests from opponents of the proposal because they missed a November 10 deadline.

Southern Company spokesman Todd Terrell said, “We are working to be ready by the second half of 2022” for the SEEM initiative to go live.

Tyler Jubert, an electricity market analyst at S&P Global Platts Analytics, said the original February proposal was that the new market would “reduce trade disputes and encourage renewable energy integration.”

“However, the agreement lacks an official plan for how an automated system that would bring buyers and sellers together would work. Therefore, it remains unclear how the trade will affect and what the integration of renewable energies will look like,” said Jubert. “Critics of the agreement have also pointed to a number of potential shortcomings, such as a potential … being implemented at this point, making it difficult to say how prices or new projects will play out.”

Eric Smith, associate director of the Tulane Energy Institute, said the project “won’t really be resolved” until FERC’s newest commissioner, Willie Phillips, comments.

“If he does, the decision will be made by the leaders of the Democratic Party and the Washington Circle” [court], decide, not the existing members of the FERC, and certainly not the… members of the proposed quasi-market, ”said Smith.

Smith said he thinks SEEM is “just an attempt to maintain the status quo by creating a rudimentary market with restricted access and two membership classes.”

“While [FERC Chairman Richard] Glick is right in that it’s a step forward, it’s not a very big step, “said Smith.

Forward price trends

Regardless of when and how SEEM is implemented, forward traders seem to expect prices to fall in the second half of 2022. On December 15, the power forwards in South and Florida at peak times from August to December 2022 were well below the average monthly day-ahead-on-peak indices for the comparable months of 2021. In almost all previous months, 2022- Forwards valued higher than the comparable monthly average daily newspapers of 2021.

Natural gas forwards and spot indices followed a similar pattern, with most forwards for the second half of 2022 significantly lower than comparable spot numbers in 2021, but with most forwards significantly higher than comparable spot numbers in the first half of Year 2021.

Increased electricity supply in the region could play a role in lower electricity price expectations for the second half of 2022.

The latest update from Georgia Power on its two new Vogtle atomic generators, each with an output of 1,117 MW, indicates that Vogtle Block 3 should go online in the third quarter of 2022, followed by Block 4 in the second quarter of 2023.

However, Georgia Public Service Commission officials and independent construction inspectors filed an estimate on Dec. 1 that Unit 3 will likely go online between December 2022 and February 2023.

Solar growth, coal retirement

Solar is also set to grow significantly in 2022, but that growth is faced with uncertainties about supply chain issues. S&P Global Market Intelligence data shows 3.3 GW of solar capacity under construction with commercial operating data in 2022, which would exceed 2.7 GW in 2021 and increase 19.8 GW installed in late 2020.

The largest solar capacity added in 2021 was 1,104 MW in Florida, but Georgia has 1,146 MW under construction with commissioning dates scheduled for 2022.

Supply bottlenecks, which were exacerbated by the recently rejected applications for exemption from anti-dumping and countervailing duties on solar cells from Malaysia, Thailand and Vietnam, “however, led to significant supply disruptions for importers,” announced the Solar Energy Industry Association on December 14th.

Jamie Bach, Commercial Energy Solution Manager for the Tennessee Valley Authority, said, “We can expect headwinds in raw material and supply chain pressures next year, but remain committed to solar growth to meet increased customer demand.”

Coal shutdowns could cut electricity in the southeastern US in 2022, which could boost electricity prices. Platts Analytics data shows 3.6 GW of coal decommissioned across the region in 2022, with a focus on Georgia, Tennessee, Florida, and Kentucky.

Jubert of Platts Analytics said the addition of nuclear and solar energy would “more than offset the coal shutdowns we expect by 2022, so incremental access to supply would provide lower wholesale electricity prices as demand is expected to remain unchanged”.

“This assumes that the Vogtle plant will be completed in the next year,” said Jubert. “We normally stick to the company’s latest proposed start-up date. However, if further construction delays are reported again it will certainly pose a risk to the schedule for Q3 2022.”