U.S. ENERGY MIX: NATURAL GAS, PETROLEUM AND RENEWABLES

Primary energy consumption fell in 2015 as a decline in coal use exceeded increases in natural gas, petroleum, and renewables use. In most cases, changes between 2014 and 2015 reflect longer-term trends in energy use.

In 2015, natural gas consumption increased more than any other energy source, accounting for 29% of total primary energy consumption. As domestic natural gas production continues to grow and natural gas prices are still low. Such low natural gas prices have triggered and increase in use of natural gas-fired generators in the electric power sector.

Coal supplied 16% of total U.S. primary energy use in 2015, down from 18% in 2014. Coal consumption declined by more than 12% in 2015, and it is now at its lowest level since 1982. Nearly all coal is used for electricity generation. In 2015, demand for coal in the power sector reached its lowest level since 1987 and this may explain in part the political fight raging in the current election in the Eastern States where coal is being used.

U.S. petroleum consumption grew in 2015, following lower pricing trend and triggering increased vehicle travel. In addition, exports of U.S. petroleum products grew, driven largely by demand in South and Central America. Crude oil exports continued to grow significantly in 2014 and averaged 458,000 barrels per day in 2015. The low price however has created havoc among small US producers precipitating 60% of small operators into financial difficulties.

Renewable fuels use continued to grow in 2015, especially in the electric power sector. Both wind and solar generation expanded significantly, growing by 31% and 5%, respectively, in 2015. Increases in wind and solar were slightly offset by a decline in hydroelectric generation, which fell for the fourth consecutive year because of drought conditions on the West Coast.

Nuclear electric power remained relatively flat in 2015. Several nuclear plants retired in 2013 and 2014, but no nuclear plants either retired or came online in 2015. Nuclear outages were relatively low during the summer of 2015.

CALIFORNIA MARKET: BIG LEGISLATIVE PUSH TOWARD RENEWABLES

California energy markets look quite a bit different today than they did five years ago when the state enacted a renewable portfolio standard law (RPS) that requires every utility and other electricity retailer to serve 33% of their load with renewable energy by 2020.

Since then, California has seen huge changes in its energy balances – it shut down the nuclear generating plants at San Onofre, regulators expedited the build-out of new transmission lines to get more wind and solar power into the market, the state implemented a carbon cap-and-trade program, the legislature increased the RPS target to 50%, and SoCal Gas’s Aliso Canyon natural gas storage facility sprung a leak.

An Energy Market in full restructuring

It was 2011 when California’s state legislature approved Senate Bill 2, which launched the state into a restructuring of its energy markets. A year later (2012), problems with newly replaced steam generators at the two-unit San Onofre Nuclear Generating Station (SONGS) resulted in their permanent shutdown, taking 2,250 MW of generation capacity out of the Los Angeles basin.

The combination of RPS implementation and the loss of San Onofre prompted state regulators to speed up the build-out of new transmission lines to allow more wind and solar power to move from supply regions to key demand areas.

Both wind and solar saw capacity grow in 2012, with wind up 800 MW and solar rising 600 MW according to Cal EPA. That intermittent renewable power supply was far from enough to make up for the San Onofre shutdowns, but fortunately there was help from the Pacific Northwest, which was able to provide hydroelectric power into California thanks to a few strong “water years.” Interesting enough the idea of using or investing into Desalinization plants was very vaguely considered and never adopted except by the City of San Diego and the City of Santa Barbara. When sit by the Pacific Ocean the City of Los Angeles is using waters coming from 2,000 miles away!

More policy changes were in the works, though. In January 2013, California regulators implemented a carbon cap-and-trade market, which effectively acts as a tax on non-renewable energy imports and in-state energy production.

Producers of energy are responsible for obtaining allowances to cover carbon emissions, which raise the cost of generation by $5-8 per megawatt hour (MWh) for a typical natural gas combined-cycle plant. This measure created an immediate increase in price to the consumers. Since non-renewable (i.e., gas) resources almost always set the marginal price for power in California, the cap-and-trade program resulted in higher power prices. That created an opportunity for owners of out-of-state generating assets with low or no carbon emissions to import power to California and receive the higher power prices without having to pay for allowances. And no one was more ready to jump in than hydro producers in the Pacific Northwest.

Also in 2015, the California grid saw solar capacity climb another 1,500 MW to end the year at around 6,500 MW. This 6,500 MW of industrial/commercial-sized facilities does not include another 4,300 MW of behind-the-meter rooftop solar that was being installed throughout the state as well. The 10,800-MW combination of the two is pretty extraordinary –– the capacity equivalent of 10 big nuclear units.

However, good news for the environmentalists, in spite of all the new solar coming on in 2015, in October 2015, California enacted a new law updating the RPS, setting a by-2030 renewables target of 50%. This set the stage for continued renewable development in 2016.

Is it good news for the consumer? probably not in the short term but definitively yes in the next twenty years!