GDF SUEZ Energy Resources NA will rebrand under the ENGIE name in 2016
ERCOT Market Update: May 2016 Market Dynamics and Energy Price Trends Andrew Elliott – Director Supply & Portfolio Management GDF SUEZ Energy Resources NA
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Safe Harbor Announcement:
Disclaimer. The views and opinions expressed herein are for informational purposes only. No reliance may be placed on such information and GDF SUEZ makes no representation as to accuracy, completeness, suitability, or validity of any information therein. In no event shall GDF SUEZ or its directors, principals, agents, employees or representatives be liable for any loss or damage whatsoever arising out of the use of such information.
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GDF SUEZ Energy Resources
GDF SUEZ Energy Resources NA is a licensed provider of retail electricity and related services to industrial and commercial customers in the United States
One of the largest national energy providers, licensed to serve 14 deregulated markets, with customers in TX, CT, DE, IL, NY, NJ, MA, MD, ME, PA, OH RI, NH & DC
Ranked #3 by DNV GL in June 2015
Serves over 8,000 customers and over 60,000 accounts
Represent almost $4 billion in contract value
The first retail supplier to publicly guarantee on-time enrollment
Recognized by customers and energy partners as a leader in quick problem resolution, execution on price quotes and on-time, accurate billing
We also provide residential energy:
Complete Energy Management ™
Operational strength
Hassle-free services
Financial responsibility and historical stability
Provides decision making tools
Informational leader
A world leader in energy
Simplified products & services
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Trusted Supplier to Over 50% of Fortune 100™, Including Oil & Gas Majors & Pipeline Companies.
Electric Reliability Council of Texas (ERCOT)
Source: ERCOT and PUCT
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• About 90% of Texas load • 24 million consumers • Competitive-choice customers: 75% of load • More than 7 million electric-service IDs (premises) • More than 46,500 circuit miles of high-voltage transmission • More than 550 generating units • More than 79,000 megawatts (MW) of expected available generation capacity for summer peak demand • One megawatt of electricity can power about 200 Texas homes during periods of peak demand. • Record peak demand: 69,877 MW • Energy used in 2015: 347 billion kilowatt-hours Up 2.2 percent compared to 2014 • Market participants: More than 1,400 active entities that generate, move, buy, sell or use wholesale electricity
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Reserve Margin Forecasts (Excess Available Generation vs. Expected Peak Demand)
Hottest Summer in 106 Years
ERCOT Target Reserve Margin
13.75%
(ERCOT may revise the Target Reserve Margin upwards based on wind availability calculations)
SARA Estimate
ERCOT Target Reserve Margin
13.75%
SARA (Summer ) Estimates: •2012: 9.4% •2013: 8.8%
SARA (Summer ) Estimates: •2012: 9.4% •2013: 8.8%
Hottest Summer in 106 Years
2014 Seasonal Assessment; Summer Forecast
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Sources: Electric Reliability Council of Texas (ERCOT), UBS & GDF SUEZ
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2014 2015 2016 2017 2018 2019 2020 2021ERCOT, May 2016 CDR Forecast 18.2% 25.4% 23.2% 22.4% 21.6%ERCOT, Dec 2015 CDR Forecast 16.5% 20.7% 25.7% 22.9% 21.8% 21.1%UBS Estimates, Dec 2015 16.5% 22.7% 26.7% 23.8% 21.4%Summer Effective Reserve Margin 11.2% 13.8% 11.1%ERCOT Target Reserve Margin 13.75% 13.75% 13.75% 13.75% 13.75% 13.75% 13.75% 13.75%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%Re
serv
e M
argi
n %
ERCOT Reserve Margin Estimates
• 2017 reserve drop reflects delay in 700 MW CC gas unit and 416 MW of Mothballed units
• Does not include coal plant retirements in the future due to Regional Haze and CPP
Summer Peak Load History and Future Forecasts
ERCOT Target Reserve Margin
13.75%
SARA Estimate SARA (Summer ) Estimates: •2012: 9.4% •2013: 8.8%
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Source: ERCOT
Source: ERCOT and GDF SUEZ
60,214
62,339 62,130 62,171
63,400
65,776
68,379 66,548 67,245
66,427
69,783
70,588 71,416
72,277 73,663
74,288
56,000
58,000
60,000
62,000
64,000
66,000
68,000
70,000
72,000
74,000
76,000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Summer Load Actual Summer Load
Forecast Summer Load
Recession
New Demand Record
Flat Demand Growth – Weather?
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020Y on Y Actual Growth 2.92% 3.53% -0.34% 0.07% 1.98% 3.75% 3.96% -2.68% 1.05% -1.22% 5.05%Y on Y Forecast Growth 1.15% 1.17% 1.21% 1.92% 0.85%
-4.00%-3.00%-2.00%-1.00%0.00%1.00%2.00%3.00%4.00%5.00%6.00%
Percentage Year on Year Load Growth Y on Y Actual Growth
Y on Y Forecast GrowthHottest
Summer in 106 Years
2% Load Growth from 2011
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ERCOT and US Generation Capacity
Source: ERCOT
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Renewable Generation Growth: Wind and Solar
Source: ERCOT and PUCT
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• Wind Output record 14,023 MW, Feb 18th 2016 • 15,764 MW Total Installed • 3,000 MW planned by 2018
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• Solar 288 MW • 1,000 MW installed by end of
2016?
New Generation Fuel Types: ERCOT and US
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Source: AWEA U.S. Wind Industry Annual Market Report Year Ending 2015
North Hub July-August (Summer) On–Peak Heat Rates
Heat Rate = Power Price / Natural Gas Price Power Price = Natural Gas Price X Heat Rate
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2012
2013
2014 2015
14
16
18
20
22
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262016 - 2018 Summer Heat Rates
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Cal 2017: Natural Gas Price & Heat Rate; Houston Hub
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HR remain relatively steady, recent drop attributable to stabilizing/rising gas prices
Cal 2017: Natural Gas Price & Heat Rate; North Hub
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HR remain relatively steady, recent drop attributable to stabilizing/rising gas prices
Cal 2019: Natural Gas Price & Heat Rate; Houston Hub
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HR remain relatively steady, recent drop attributable to stabilizing/rising gas prices
Cal 2019: Natural Gas Price & Heat Rate; North Hub
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HR remain relatively steady, recent drop attributable to stabilizing/rising gas prices
Cal 2017: Natural Gas Price & Power Price; Houston Hub
Power and Natural Gas making a move off the lows, but still near
13-year lows
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Cal 2017: Natural Gas Price & Power Price; North Hub
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Power and Natural Gas making a move off the lows, but still near
13-year lows
Cal 2019: Natural Gas Price & Power Price; Houston Hub
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Power and Natural Gas making a move off the lows, but still near
13-year lows
Cal 2019: Natural Gas Price & Power Price; North Hub
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Power and Natural Gas making a move off the lows, but still near
13-year lows
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Federal Environmental Regulations Summary
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Source: ERCOT & GDF SUEZ
Table 1: Environmental Regulations Impacting ERCOT Generation
Regulation Compliance Date Description Impacts
Mercury and Air Toxics Standards
April 2015 (April 2016 with extension)
Sets limits on hazardous air pollutant emissions at power plants
Owners of coal units without sufficient controls will need to retrofit to comply
Cross-State Air Pollution Rule
January 2015 Addresses cross-state air pollution through limits on annual nitrogen oxides (NOx) and sulfur dioxide (SO2) emissions, and ozone season (summer) NOx emissions
Most fossil fuel-fired generators in ERCOT are subject to CSAPR; resource owners may need to purchase allowances to comply
Regional Haze Three to five years after final Federal Plan was issued (2019 - 2021). Stay requests have been filed.
Requires controls on air emissions to improve visibility in national parks
Owners of certain coal units are required to retrofit with scrubbers, or upgrade existing scrubbers (3,000 – 8,000 MW)
Clean Power Plan Stay by the Supreme
Court will delay original implementation time frame: 2020-2029 (interim goal); 2030 onwards (final goal)
June 2, 2016 Court of Appeals review. Sets carbon dioxide emissions limits for existing units
Rule has implications for most fossil-fuel fired generation in ERCOT, as well as for renewable energy and energy efficiency programs
US Coal Plants Subject to Clean Power Plan Regulations
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Texas Coal Plants Subject to Environmental Regulations
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Martin Lake – 2,455 MW, Old Scrubbers Monticello – 1,955 MW, One Scrubber Big Brown – 1,200 MW, No Scrubber Total: 5,610 MW at Risk
Texas Coal Plants: Short Term Generation Economics Look Bleak?
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Assumes no forward hedges: • Most plants will have a portion of the output hedged through 2017
• Monticello operates seasonally • Maybe not quite as bad as it looks but will coal units retire prior to environmental
regulation deadlines?
Natural Gas Forward Prices; NYMEX Henry Hub
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$1.50
$1.75
$2.00
$2.25
$2.50
$2.75
$3.00
$3.25
$3.50
$3.75
$4.00
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$ M
MBt
u
Forward Monthly NYMEX Natural Gas Price
Current NYMEX Natural Gas Price
February 4, 2016
March 29, 2016
Bal 2016: $2.48 Cal 2017: $3.00 Cal 2018: $3.03 Cal 2019: $3.04 Cal 2020: $3.11 Cal 2021: $3.25
US Natural Gas Storage Level
Current Storage Level: 2,625 Bcf, 49% above last year and 48% above the five year average • This week’s report showed an injection 68 Bcf, 5-year average is 64 Bcf • Expectations for the upcoming week are an injection of 60 Bcf
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Natural Gas and Oil Rig Count Changes
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LNG Prices, Price Spreads and Export Quantities
Australia will have 8.0 Bcf/day deliverability in 2018
Early Summer Forecasts: Trending Above Across the US
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June – August Forecast
Farmers’ Almanac
Bullish and Bearish Indicators
Bullish Indicators (Rising Prices) • ☼ * Clean Air Legislation in general provides upward
pressure on natural gas prices due to increased build and dependence on natural gas fired generation; retire or retrofit coal units, fracking restrictions; Obama CPP, Regional Haze Rule, Cross State Air Pollution Rule
• ☼ Reduction in oil and gas CAPEX . Gas and oil rig counts dropping
• ☼ LNG exports – will enough LNG export facilities be built to allow for significant exports (2018- 2019 effect?). Expecting 6 Bcf – 8 Bcf export demand.
• * Regulatory Activities, PUCT and ERCOT - Revisions to the Operating Reserve Demand Curve (ORDC). Ancillary Service changes. Effects of Protocol changes on prices?
• ☼ * Summer weather – early forecasts calling for above normal across the nation, except Texas?
• ☼ Natural gas and power exports to Mexico – Mexico’s privatization of the energy sector may increase US exports to Mexico; power (Frontera 520 MW), Texas Eastern gas export pipeline expansion 400 Mcf/d in 2017.
• ☼ * LNG plant energy consumption – huge power users - 400 MW, some with onsite generation. 2018 - 2019
• * ERCOT Reserve Margins expected to decrease yearly with load growth and coal unit retirements/mothball. Some believe reserve margins are overstated 2018 – 2020.
• ☼ Coal to Gas switching – generators using more gas units to produce electricity due to price advantage vs. coal units
Bearish Indicators (Falling Prices) • ☼ Natural gas storage levels – gas storage will end at all
time highs ~2,400 Bcf. Gas from shale production continues to grow modestly. Artificial cap on prices…?
• * Healthy reserve margins – outlook appears good through 2020? New generation investment…fuel types?
• * Energy efficiency gains – are efficiency measures kicking in? ..green buildings, commercial and industrial retrofitting, AC efficiencies, Energy Star homes
• ☼ * Some summer weather forecasts are calling for a potential cooler and wetter Texas. Will Gulf tropical activity dampen heat?
• * Distributed generation/Renewables – continued wind expansion, solar technology advancement, distributed generation initiatives and battery technology
• ☼ * Increased role of Demand Response – will demand response effectively reduce scarcity pricing/shortage concerns, 4 CP management
• ☼ Japan restarting 3 nuclear facilities recently since Fukushima
• * Transmission upgrades and expansion may lower costs to North , South and Houston.
• ☼ * WILD CARD – Crude prices….. Demand destruction?
* Denotes potential impacts to heat rates ☼ Denotes potential impacts on natural gas prices
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Hotter < Summer Weather > Cooler
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GDF SUEZ Energy Resources NA will rebrand under the ENGIE name in 2016
Price Hub Locations for Power and Natural Gas
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US Shale Locations
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