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Fall 2021 Market Update
The Impact on Pricing and the Markets with the Reopening Post-covid and the Ongoing Impact with the Resurgence of Covid
Energy Advisory Services
By Dan Cwalisnski
Director of Contracts and Pricing
Whereas 2020 saw significant demand destruction and reduction in commodity pricing across the country, the story has been quite different in 2021.
Since the start of 2021, we have seen energy markets begin to recover , slowly at first and then picking up steam as vaccinations started to become available and people began to get vaccinated . That vaccination wave provided a glimmer of normalcy that had seemed all but lost and hinted at a larger overall economic recovery. During this time, we also saw winter storm Uri negatively impacted natural gas storage inventories . People thought about traveling again and many businesses re-opened or scheduled returns to the office targeting dates in 2021.
Through the Spring, demand continued to improve, and market forces picked up steam, compounded by inflation, which typically shows in commodity pricing first. June was the hottest June ever recorded in the contiguous US, according to the National Oceanic and Atmospheric Administration (NOAA) .
In early July natural gas storage levels fell below the 5-year average, escalating prices further. At the current rate, storage levels are expected to be 159 BCF below the 5-year average as we head into withdrawal season . As of the end of summer, prices have continued to climb, most notably in the next year Calendar strips for 2022, particularly in the winter months. Some businesses have been forced to rethink their office re-opening plans as the Delta variant of the virus surged and are now targeting the start of 2022 for office re-openings .
There is not much in the market fundamentals we are currently seeing that would suggest much of a significant pull-back in pricing before this winter. Right now, the winter is forecasted to be a warm one with La Nina patterns detected, and this has already been accounted for in the rates you are seeing. The Covid recovery seems to be materializing as anticipated despite the recent surge in cases caused by the Delta variant. President Biden has also come out with a vaccine mandate, for all businesses over 100 people to require vaccinations . That said, a lot of the price pressure is coming from those winter months and if there is a pull back, those months will be heavily impacted. Since we are still months from the winter, forecasts are typically unreliable. While a colder winter than anticipated could cause prices to skyrocket further, a warmer one may allow prices to maintain or ease.
Even though you may believe the market has to pull back from current levels, timing of a market pull-back or correction is almost impossible to pinpoint. Businesses in need of deciding on their next commodity contract must weigh upside risk for further price escalation against downside rewards if the market does pull back. It has been some time since buyers have faced buying into an escalating market and this type of environment can be difficult to navigate.
If expiring contracts are forcing a decision, here are some options available to you. This is not an exhaustive list, but rather some ideas to consider:
• Skip the winter of 2021/2022 (Dec, Jan, Feb) in any contracts for now and shift your start date out to March of 2022 (or later). As utility prices for the winter are released, compare those prices to what you are seeing for competitive supply and make a decision at that point on what to do for the winter. Having the comparable numbers may help justify a decision either way.
• You could also look at hedging some of the non-winter months and watch the market for any buying opportunities in the winter months where you can layer in percentages for those months as you approach the flow dates. With fixed pricing so high, index pricing may be part of an overall buying strategy, where a certain percentage of your load remains tied to index pricing while other percentages are tied to a fixed price. Winters in the Northeast are historically volatile though and could wind up higher than a fixed price.
• Look at a short-term contract between 10 and 12 months and hope that something changes with the market fundamentals by the Spring.
Keep an eye on any further developments with hurricanes, natural gas production and exports, covid updates, and winter weather forecasts. If there is any significant news on any of those fronts, you are likely to see further price impacts to either the up or downside, depending on the news.
As always, Freedom’s Energy Advisors are available to review and discuss your best options.
LNG Demand and Storage Going into Winter 2021-2022
By Sean Devine
Director of Natural Gas
There have been a few main driving factors that have led to the increasingly higher natural gas prices and lower storage levels through 2021. As the country has seen continuous heat waves across a majority of the lower 48, another driver has made quite an impact on the ascending pricing of natural gas and that driver is Liquified Natural Gas (LNG).
LNG feedgas deliveries to date have hovered around 10 Bcf/d which is roughly twice as much compared to 2020. The JKM market (Japan and Korea) is seeing winter pricing in the high teens/dth. This means the demand for LNG for the upcoming winter will be a significant market dictator. We are seeing this supply and demand relationship driving the cost of natural gas higher and higher. With more facilities coming online over the next 12 to 18 months, as well as increased rail capacity, we will be seeing LNG playing an even bigger role in natural gas pricing.
Storage has also made quite an impact and the two are related. With heatwaves increasing power generation demand, the lower-than-expected storage injections are beginning to worry some as we head into the heating season. Storage plays a key role during periods of volatility and when the temperatures drop below freezing, and the transportation lines are maxed, the release of needed gas into the distribution system keeps the boilers running and the lights on. The two drivers go hand in hand as mentioned in a previous article, What is The Relationship Between Commodity Prices and Inflation?.
LNG tankers also keep the boilers running and the lights on in the winter here in the northern states. With the JKM market inflated, demand continuously increasing for LNG, and low storage levels, we are expecting less of the precious LNG tankers to deliver to the New England marketplace. This combination of LNG demand, increased export capacity, and power generation demand have played a main role in pushing natural gas costs up on the mercantile exchange. We will be keeping a very close eye on all of these factors.
Impacts of Solar Power on End Users in New England
Energy Advisory Services
By Howard Plante
Vice President of Procurement
With State policies driving clean energy requirements and the increasing demand to reduce electricity generation from fuel and non-renewable sources, the installation of solar power systems is growing at a rapid pace in New England. As of 2020, there was close to 4,000 MW of solar generating capacity including more than 180,000 behind-the-meter (BTM) installations. And it is beginning to have an overall impact on the grid.
What does this mean for end users? What difficulties does it pose for ISO-NE?
ISO Records Some First Time Ever Events as a Result of Solar Power
Solar power is changing historical grid patterns. On an April day in 2018, solar output drove down demand on the grid such that New Englanders used more grid electricity during the overnight hours than they did during the day. That had never happened, but it has several times since. ISO also reported for the first time since at least 2000, and possibly ever, grid electricity demand on Thanksgiving Day 2018 did not peak in the morning as New Englanders turned on their ovens; solar pushed the peak to after sunset.
Annual System Peak
Solar power has reduced demand during the afternoon hours, pushing the peak to early evening. From 2001 through 2011, the Annual System Peak occurred in the 2:00-3:00 pm hour in 10 out of 11 years with 2004 the exception at 3:00-4:00 pm. Since then, the peak has shifted to later in the afternoon and from 5:00-6:00 pm the past two years. Based on the data to date this year, it appears the peak will be from 5:00-6:00 pm as well.
For many end users, a later peak may naturally yield a lower capacity tag as a result of reduced or no production on second shifts, lower cooling load than in the afternoon, etc. A lower capacity tag results in a lower overall electricity price.
Reduced Peak Hours Pricing
Behind the meter (BTM) solar power is reducing the amount of grid electricity during the peak hours of the day, avoiding the need to dispatch more expensive generation as demand increases. As a result, end users that purchase market-based power experience lower prices in those peak hours than they would otherwise without solar.
Although the cost reduction is difficult to quantify because it means modeling a hypothetical scenario with the change in dispatched generation that would have taken place, there is a cost reduction, but it will not completely eliminate periodic price spikes in summer peak hours.
Increased solar will result in more extreme dips in demand that leads to system imbalance and excess generation. To help avoid those scenarios, negative pricing was implemented by ISO to disincentivize resources to continue operating when there is a surplus of power.
When pricing is negative, end users on a market-based product get paid for the electricity they used in those hours. In 2019 there were 50 negative priced hours with an average of -1 cent per kWh, and 29 hours in 2020.
What is BTM solar?
The term ‘behind the meter’ (BTM) is used when describing solar and energy storage systems that power your home or building without needing the utility. A BTM system not only helps achieve energy independence from the grid, it also helps reduce risk because it increases energy resilience.
Difficulties for the Grid Operator – ISO-NE
We all know the weather can change rapidly in New England. Throughout the day, in 5-minute increments, the ISO must rely on forecasts to accurately predict demand on the grid so that generation balances actual demand with precision. Solar output can vary considerably on any given day depending on weather conditions, as well as seasonal variations. Those conditions result in rapid swings in solar output. As more solar is installed, these fluctuations will require the ISO to rely more heavily on resources that can quickly balance the fluctuations, such as fast-start natural gas power plants. Eventually, battery storage systems will help to balance the variations. The increase solar installations will continue to pose challenges to ISO for long term and day to day planning and it is continuously looking at methods to improve its forecasting and operational reliability capabilities.
Index Pricing in Rising Markets
Electricity & Natural Gas
By Carol Anne Watts
Director of Energy Sales
Are you disappointed with renewal rates? If your energy contract is expiring in 2021/2022 you have likely been surprised with the renewal rates being presented to you.
Since April 2021, future markets have been quickly increasing with little sign of relief in the near term, thus making most customers enter into agreements higher than their current price. What you may not know is that there are options other than buying a fixed price which may offer you more flexibility and a lower cost over time.
In 2020 we were presented with historic buying opportunities due to a mild winter in the Northeast and a suppressed economy due to COVID-19. For those unable to capitalize on that market opportunity and renew contracts in those remarkable lows, they may find themselves in a quickly rising market with little time to decide on the next electric/gas contract. If you find yourself amongst those disenchanted with renewal rates, we encourage you to entertain an index product.
Fixed prices factor in what traders believe the future commodity cost to be on the day they execute the agreement. But markets can, and do, fall short of those predictions, leaving you paying an unnecessary risk premium. On an index agreement however, you will pay actual closing costs of the commodity, without the risk premium of hedging into a future market. The tradeoff is price stability, which is often misinterpreted as risk. There are equal amounts of risk in a fixed and index agreement.
As every business will quantify risk differently, it is key to understand what is most important to your business – price certainty or cost over time. An index product cannot provide price certainty but will often outperform fixed rate contracts if markets do not perform as predicted on the day your business executes their commodity agreement. A fixed contract will provide budget certainty and price stability, but you are committing to future years of power supply and potentially missing other buying opportunities as lower rates.
An index, or monthly variable, product offers clients more flexibility and reactivity than your standard fixed rate agreement. Many of these contracts carry a shorter-term commitment. (Pre-negotiated agreements through Freedom can be as short as a 30-day term). Shorter terms allow for more flexibility in your buying strategy and opportunities to react quickly if/when markets do fall.
As energy advisors, Freedom can set up agreements that will automatically execute when the markets reach your desired price. In other words, you manage your day-to-day operations of your business while knowing you won’t miss a good opportunity. The ability to react quickly and pivot is a major benefit to an index agreement in highly volatile markets.
The conversation around index agreements is one of risk tolerance. Is your business more aggressive or more conservative when it comes to taking on risk? Are your current options leaving you more apt to take on more risk than previous years? As your Energy Advisor, Freedom can explore these topics and present a solution, or mix of solutions, which satisfy your needs while minimizing risk and exposure.
New Hampshire HB315: Net Metering Expanded and Community Choice Aggregation Enhanced
By Thomas Carter
Director of Business Development & Public Relations
By Jack Martell
Renewable Program Manager
After a long year of negotiations, compromise, and input from various stakeholders HB315 has been signed into law by Governor Sununu. HB315 is a big victory for advocates of net metering and community choice aggregation (CCA) as it enhances both existing programs dramatically.
On the net metering front, HB315 raises the net metering cap from 1MW to 5MW, however this increase is only applicable for municipal customers. For seven years now, the New Hampshire Legislature has worked to find a bipartisan solution to raising the net metering limits, and with HB315, that solution has finally arrived. While the 1MW cap is still in place for most electricity users, the increase to 5MW for municipal users is substantial and provides a successful program blueprint towards wider adoption in the coming years.
The net metering expansion is poised to benefit both renewable energy generators and municipal energy users alike. By pairing with a local renewable generator, New Hampshire municipalities can realize significant energy cost savings while supporting local renewable resources. The renewable generation facility does not have to be physically located on the municipality’s premises, and if the facility was built and in service prior to January 1, 2021, can be located anywhere within the applicable utility territory. Expanding the net metering limit to 5MW makes large scale renewable energy projects financially viable due to generous utility incentives. This will create a significant injection of renewable energy into New Hampshire’s utility infrastructure, increasing system resiliency and reducing carbon emissions.
Under HB315, receiving the net metering benefits of local renewable energy projects is financially risk free. In addition, it does not require behavioral changes from municipalities. When a municipality enrolls as a member in an eligible project, it allows the renewable asset to receive standard offer payment for the generated electricity offset by the municipality, providing a significant economic boost to these projects.
To incentivize participation, local generators are willing to share the financial benefits with their offtake group, helping reduce energy costs. Put simply, your city, town, or municipal organization continues to use electricity as it already does, and pending contract terms, receives an annual payment for your participation.
On the Community Choice Aggregation (CCA) front, HB315 cleared some previous obstacles not covered by SB286 in 2019. Most importantly, HB315 created a Purchase of Receivables Program, or POR as it is commonly known. POR is a program whereby the utility, not the third-party supplier, is responsible for collection of the monthly customer payments. States with robust CCA programs like MA, NY, and OH have adopted POR, leading to growth of supplier participation and lower CCA rates. Absent POR, suppliers serving communities through a CCA mechanism have no ability to check customer credit or decide which customers they will or won’t serve. It is a universal access program. As such, suppliers in non-POR markets assume significant credit risk which then manifests itself in higher CCA rates and lower supplier bid participation. It also means that communities with higher rate payer default rates are left under- or un-served. POR corrects this, by offering the CCA suppliers the same payment guarantees the utilities have. This will allow cities and towns who offer CCA programs to pass on the benefits of community scale net metering to their residents.
“I am ecstatic that everyone’s hard work has culminated in the passage of this extremely important energy legislation,” stated Bart Fromuth, COO, Freedom Energy Logistics. “From the Governor’s office, the House and Senate energy committees, and Clean Energy NH, to the Cities of Lebanon and Nashua, and even the utilities, everyone played an important role in reaching compromise and making HB315 a reality. I’m delighted that Freedom Energy played a part in this initiative, and I cannot wait until New Hampshire realizes the benefits from this bipartisan effort.”
Please reach out to the Freedom Energy Logistics team to learn more about community choice aggregation, registering as a generator, participating as an off taker, and pairing with a renewable energy project.
Massachusetts Commercial and Industrial Renewable Energy
By Jack Martell
Renewable Program Manager
Massachusetts has long been a leader in advancing renewable energy policy and programs designed to drive more commercial development to the state. Thanks to these programs, including the commonly referenced Solar Massachusetts Renewable Target (SMART) program, commercial energy users in Massachusetts have several options to reduce costs and forward sustainability goals. With sustainability commitments and increasing pressure from clients, investors, employees, and patrons to become more sustainable, it is more important than ever to understand all the options and incentives available to your business.
What is SMART?
The Massachusetts SMART program is a Massachusetts Department of Energy Resources (DOER) incentive program designed to support the development of 3,200 MW of solar in the state. Under SMART, solar project system owners are paid a fixed rate per kilowatt hour directly by one of the three participating utility companies for the electricity that the projects produce. At the commercial level, eligible projects can generate significant revenue and make the investment in on-site solar generation worthwhile.
How can your Massachusetts business or organization benefit from solar?
Power Purchase Agreements and Virtual PPAs
A Power Purchase Agreement (PPA) or a Virtual PPA are a great way to take advantage of renewable energy attributes while avoiding upfront costs.
Under a PPA arrangement, the developer will design, permit, and finance the project at little to no cost to your business. Then, through the power purchase agreement, your business can secure low cost, fixed price electricity from an onsite system that feeds directly into your facility, allowing for a significant reduction in carbon emissions in support of your sustainability goals and protection from increased energy costs
A Virtual Power Purchase Agreement (VPPA) provides a mechanism for a business to secure electricity and environmental attributes from a renewable energy system that is located offsite. This is a great option for those with facility limitations or who rent their space.
Through a VPPA, the electricity is fed into the utility grid and sold on the wholesale market. Your business retains the Renewable Energy Credits (RECs) and pays a small varying price dependent upon the wholesale market rates. This is a great option to secure local RECs in support of your emissions reduction goals and sustainability initiatives.
Community Solar Solutions
Under the umbrella of the SMART program, Community Solar is an approach to renewable energy that allows businesses unable to install solar onsite to take advantage of the benefits of renewables. Nearly 75% of Massachusetts businesses and residents are not able to install solar onsite, thereby making Community Solar a favorable alternative.
Through Community Solar, businesses can subscribe to the output of local solar farms and receive 10% savings on their utility bills while also supporting local renewable energy generation.
What is a solar PPA?
According to Solar Energy Industries Association (SEIA), the definition of a solar power purchase agreement (PPA) is a financial agreement where a developer arranges for the design, permitting, financing and installation of a solar energy system on a client’s property at little to no cost. The developer sells the power generated to the host customer
at a fixed rate that is typically lower than the local utility’s retail rate. This lower electricity price serves to offset the client’s purchase of electricity from the grid while the developer receives the income from these sales of electricity as well as any tax credits and other incentives generated from the system PPAs typically range from 10 to 25 years and the developer remains responsible for the operation and maintenance of the system for the duration of the agreement. At the end of the PPA contract term, a client may be able to extend the PPA, have the developer remove the system or choose to buy the solar energy system from the developer.
What’s a REC?
A REC is a tradeable, market-based, renewable energy credit that legally represents the renewable attributes equal to one megawatt-hour (MWh) of renewable electricity generation delivered to the grid from a renewable energy resource. Note that electricity is not considered renewable without a REC to substantiate its origin. RECs provide a way to help achieve clean energy goals, lower scope 2 emissions associated with purchased electricity, and support the renewable energy market. They can be purchased separately from electricity and independently matched with electricity consumption.
With continued focus on environmental and sustainability goals, businesses are seeking simple and cost-effective strategies to help achieve their goals.
One common approach is the use of EGreen certified electricity and natural gas contracts. Through an EGreen contract, your business can buy additional RECs from the source of your choosing to offset up to 100% of your electricity and natural gas load. These contracts are part of your competitive supply agreement and are a low-cost way to realize carbon neutrality.
Why Invest in Electric Vehicle Charging Stations?
By Jack Martell
Renewable Program Manager
Do you have clients, employees, and visitors who drive electric vehicles? Are any of your business vehicles electric or do you plan to add some to your fleet?
As electric vehicles become more commonplace, the need for fast and efficient charging solutions has never been higher. This spells opportunity for forward-thinking businesses. By investing in EV chargers for your parking lot or garage your business can add value whether your organization is a retail store or hospitality establishment, manufacturing facility, or a municipality or university campus.
Electric vehicle mobility has grown exponentially over the last few years. According to the Edison Electric Institute (EEI), today there are more than 1.7M electric vehicles (EV) on the road in the US with annual EV sales expected to reach 1.4M by 2025. EEI anticipates 18M will be on the road by 2030. EV drivers will expect to charge their vehicles while in route.
In early August, President Biden took a step towards driving a reduction in greenhouse gas emissions with an executive order aimed at making half of all new vehicles sold in 2030 electric, a move that he made with the backing from some of the largest U.S. automakers.
As a result, there is opportunity for businesses to support building a charging station infrastructure. The tremendous increase in electric vehicle ownership translates to significantly greater demand for more readily available charging stations with an estimated 9.6M charging ports needed to fulfill demand over the next few years. 
With the many types of charging stations available today, you will need a knowledgeable partner to provide specific insights on what charging stations and power output are right for your business, and for long-term maintenance and service requirements.
This may be an opportunity for you to integrate another element into your sustainability plan. As your Energy Advisor, Freedom Energy Logistics along with our partner EV Box, can help specify and implement the best EV Charging solution to support and achieve your specific needs and requirements.
CLIENT SPOTLIGHT: City of Salem, MA
Salem is a historic coastal city in Essex County, Massachusetts and it is in the North Shore region of the state. The city features both historic residential neighborhoods and seaport tourist areas. One of the most widely known aspects of Salem is its history of witchcraft allegations, and the infamous Salem witch trials in the late 1600’s.
In the present day, the city and the local community are steadfast in their commitment to a sustainable future. As far back as 2016, the Salem City Council drafted a resolution in support of 100% renewable energy. The resolution resolved that the City of Salem would move forward to reduce fossil fuel use and expand clean energy initiatives that could offset a significant portion of the City’s electricity use.
Today, the city strives to exceed the state of Massachusetts’ commitment to carbon neutrality by 2050. Salem’s Resilient Together—2021 climate action plan highlights the City’s commitment to 100% clean energy for all municipal operations by 2030 and 100% of community energy by 2040.
In support of their commitment to a sustainable future, the City contracted through Freedom Energy Logistics for its electricity requirements for the next 3 years. The contract includes an additional voluntary renewable energy component for all of Salem’s 200 accounts. To cover its annual usage, the city purchased a combination of Class I MA Renewable Energy Certificates (RECs) and National Wind RECs Combined.
The REC purchase equates to a GHG emissions reduction equivalent to removing 1,459 passenger cars from the road for a year or the CO2 emissions reduction equivalent to producing enough electricity annually to power approximately 808 homes.
Salem is dedicated to accessible renewable energy for all its residents and businesses, and that the energy supply is renewable, efficient, safe, and resilient to climate-related disruptions.
Freedom Energy applauds Salem and the community for its tremendous strides and commitment in the effort to combat climate change. We are delighted to work with the city, not only to attain their energy objectives, but also to and assist in achieving their sustainability goals.