Smartest Insight | Issue 121

Our weekly company round-up covers the key market and industry news in one place, so you don’t have to look any further to stay ahead.

June 02, 2023


Market Update:

In the past week, natural gas prices have come off between $0.20 to $0.30/MMBTU.  The market continues it's bearish trend with the absence of any extreme weather forecasted for the first half of June.  On May 26th we saw the Jun NG contract roll off of prompt month at $2.16/MMBTU

The market continues to be oversupplied as NG storages continues to build.  For weekending May 26th, another 107 BCF was expected to be added to the national storage reserve.  The actual increase came in at +110 BCF making the total reserve 2,446 BCF, which is 30% higher than last year and 16.6% over the five year average.  The market reacted was dropping an extra 2% on the day on an already down market day

With the approval of the newly negotiated debt ceiling package, the Mountain Valley Pipeline (MVP) will be on a fast tract to completion.  The 300 mile NG pipeline project has been stalled with court challenges in recent years.  Once the package is signed into law, any new appeals will be diverted to D.C. Circuit.  The pipeline is expected to begin delivering up to 2 million dekatherms/day in late 2023 or early 2024.

Regulatory Report:

Mass. Regulators Show Interest in Carbon Pricing as a Tool for Decarbonization

Massachusetts energy regulators have recommended a pause in the pursuit of a regional Forward Clean Energy Market due to its lengthy implementation process. Instead, they are showing interest in using carbon pricing as a tool for decarbonization. This is a significant statement, as it is the most positive stance on carbon pricing from any New England governor's office. The regulators' recommendation came in a report called the Clean Energy Market Report, which explores market-based mechanisms to achieve the state's decarbonization and clean energy goals.

The report highlights the complexity and lengthy implementation process of the Forward Clean Energy Market Design Proposal. This proposal aims to create a forward market for clean energy products but has proven challenging to implement. The regulators found that the current approach of bilateral power purchase agreements between states is not cost-effective and lacks transparent price signals. It also leads to negative pricing periods and potential disruptions in the power market.

The Pathways Study, released in April 2022, provided valuable data and analysis on different approaches to meeting environmental requirements and goals in the New England states. The study found that implementing a net carbon pricing framework, where power generators pay for their carbon emissions, is the most effective mechanism for displacing carbon-intensive generation. However, achieving regional consensus on emissions reduction targets poses a challenge.

While the report concludes that the Forward Clean Energy Market is still many years away from implementation, Massachusetts will continue engagement if other states or market participants decide to move forward. The focus now is on exploring carbon pricing as a quicker alternative to achieve decarbonization goals.

US Offshore Wind Reaches Milestone with Completion of First American-Built Substation

The US offshore wind industry has achieved a significant milestone with the completion of the first American-built offshore wind substation. The substation, designed and built by Kiewit Offshore Services, is heading to the East Coast for installation at the South Fork Wind project site. The South Fork Wind project is a joint venture between Eversource Energy and Orsted. The offshore construction phase is underway, with the laying of submarine cables and the upcoming installation of monopile foundations. The project aims to be completed by the end of 2023.

Developing offshore wind projects remains costly compared to other forms of power generation. The average levelized cost of electricity for a utility-scale fixed-bottom offshore wind project in the US is around $78/MWh, higher than the $34/MWh for land-based wind farms. However, pricing varies significantly among different offshore wind projects, with levelized nominal prices ranging from $780/MWh to $42.30/MWh. Factors such as contract terms, renewable energy credit structures, and transmission component inclusion contribute to these variations.

The offshore wind industry has faced challenges due to increased costs of materials such as steel and copper, supply chain bottlenecks, and inflation. These factors have raised concerns about project delays and economic risks for offshore wind projects. Nonetheless, the industry continues to progress and contribute to the development of a domestic offshore wind energy supply chain across the United States.