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MARKET TREND ANALYSIS

Weekly Energy Market Updates by Region

 

 

 


Issue week: March 3rd, 2022  (Wk 9)

 

POWER MARKETS

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WEST  After spiking at the beginning of February and again at the end during the cold spell, Day Ahead prices averaged around $45/MWh in CAISO and $37/MWh in Mid-C for the month. Looking forward, the warm and wet weather projected across the 1-to-5-day forecast period should fortify the snowpack to improve the outlook for hydro generation. Additionally, because SoCal Gas still needs to decrease its inventory at the Aliso Canyon storage facility to meet the CPUC mandate, spot prices should dip through the spring.

ERCOT  The quadruple-digit real-time prices recorded on day 24 of last month lifted the average for February from approximately $30/MWh to nearly $50/MWh. As March debuts, real-time prices have been normal for this time of year with very little ORDC to speak of. Meanwhile, as winter enters its final stage, term gas futures have fallen and pulled term prices a bit lower than last week. Wind output is expected to range from 5 GW to 25 GW next week.

EAST Day Ahead and Real Time prices remain volatile in ISO-NE and NYISO. After last week’s plunge, cold weather chilled the East again and sent averages in ISO-NE above $100/MWh. In NYISO, prices are not that high but are around $70-$80/MWh. In stark contrast, PJM and MISO did tick up a bit but are still around only $40-$60/MWh.


NATURAL GAS 

The EIA reported Thursday morning that, for the week ending February 25, U.S. inventories decreased by 139 Bcf, a tad more than the anticipated withdrawal of 135 Bcf. Total stockpiles now stand at 1,643 Bcf, down by 11.6% from a year ago and 13.4% below the five-year average for the same week.

Because oil and natural gas are close substitutes for each other in many energy producing applications, the prices of the two commodities are positively correlated. Therefore, in light of Tuesday’s spike in the Brent Crude Oil Continuous Contract index above $100/barrel, not to mention the current conflict in Ukraine, it is not surprising that the new NYMEX prompt month of April has increased by $0.15/MMBtu from last Thursday, closing today $0.040/MMBtu lower than yesterday at $4.722/MMBtu.



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TOO COSTLY NOT TO PAY FOR CARBON?

That carbon emissions carry considerable external costs in collateral damage both to the environment and to the public is certainly not news, nor is the importance of equitably allocating those costs. Indeed, the World Bank, like many global entities, suggests putting an actual monetary price on carbon emissions in the form of a plain old tax, arguing, “A price on carbon helps shift the burden for the damage back to those who are responsible for it, and who can reduce it…In this way, the overall environmental goal is achieved in the most flexible and least-cost way to society.”

Greg Barker of the Carbon Pricing Leadership Coalition, speaking at the COP26 conference last November, reported to CNBC that 69 countries had implemented such a levy ranging from $1 to $139 per metric ton, although the U.S. is not currently among them. Perhaps Congress fears the ramifications of an outright carbon tax on energy prices and the broader U.S. economy. However, by avoiding that bitter pill, it ironically could miss an opportunity for robust national growth.

Fortunately, individual states are free to experiment with their own mechanisms for enacting restitution for carbon emissions, and at least one has evidently been rewarded for its efforts. Since the inception in 2006 of its cap-and-trade program—whereby offending facilities trade credits and allowances to offset their polluting activities—California has enjoyed a steady decrease in emissions while both its population and its gross state product have soared, as shown in the chart below from the California Air Resources Board. The Environmental Defense Fund explains that, among other things, the program “is directly benefitting residents through climate investments from auction revenues, new clean energy jobs, and local air quality initiatives.”



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Of course, not every state can be or even desires to be as ambitious as California, so it is commendable that, in a show of true American initiative, even private entities have implemented internal carbon-pricing programs. The CDP (formerly Carbon Disclosure Project) reported that more than 2,000 of the companies that it surveyed in 2020 either had implemented an internal carbon-pricing scheme or planned to do so by this year.

Increasingly, corporations realize that using this sort of economic trigger to indicate how much social cost they can alleviate demonstrates a commitment to environmental, social, and governance (ESG) concerns, broadening their appeal. Costs have traditionally been deemed something to avoid or minimize, but embracing the costs of carbon emissions may actually be one of the better decisions that a business can make.


 

 

 

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