The Year-end Review and Future Projections: Awaiting More Synergy between the Energy Sector and IT

The Year-end Review and Future Projections: Awaiting More Synergy between the Energy Sector and IT

By
January 7, 2016

Lacking originality, we are closing 2015 with the yearly review and endeavored predictions of the near future; this time however, we will look at the energy sector in conjunction with data business and software solutions. The energy sector has been facing probably some of the most difficult times ever. Each industry within this sector is being impacted by completely different factors which, nonetheless has something in common: turbulence and high uncertainty. Fossil fuels have been dealing with the most complexity and controversy and have kept data vendors very busy. The power industry has been trying to find firm grounds with disruptive technologies (i.e. renewables) approaching maturity; this has been creating very attractive opportunities for data management and other software solution providers.

Crude oil prices saw the most remarkable crash with WTI dropping from around $100 to the $30 territory and the spread between Brent and WTI shrinking. Data vendors supporting petroleum markets have been busier than data providers for any other market in 2015: multiple new price assessments for Middle East and Russia, various Brent and WTI spreads, associated freight pricing and so on.

Ample supply boosted by OPEC throughout the whole year consistently outpaced global demand. With oil stockpiles reaching the highest levels in many years, the year ended with just too much oil. At the end of 2015, OPEC raised its production ceiling, the U.S. lifted the 40-year oil export ban, and Iran joined the production party to bring even more hydrocarbons to the world… just to make sure that the oil glut will last a bit longer. So what will it bring us in the future? Probably low prices will weed out producers with shallow pockets, oil production dependent countries will attempt to diversify their portfolios and economies. At the same time, the holders of short positions in oil and owners of oil storage facilities will likely have many happy trips to their banks with data providers strolling along.

The story from the coal fields is a bit different. The rope on this fossil fuel tightened up by a couple knots in 2015. In August, the EPA approved the Clean Power Plan, the first federal regulations for the power sector seeking to cut CO2 emissions from the industry 32% below 2005 levels by 2030. Then the COP-21 talks in Paris in November resulted in created the agreement between 190 countries to make their economies operate at zero net emissions in the second half of the century. To achieve this goal, utilities will likely be dealing with much stricter carbon allowances than those stipulated by the Clean Power Plan. Carbon capturing technologies for the power industry have not had much to brag about. The world’s first post-combustion carbon capture and sequestration plant that came online in November in Saskatchewan ran into cost overruns. Mississippi Power also admitted that its carbon capture integrated gasification combined cycle facility currently under construction is two years behind schedule and afflicted by precipitous cost overruns. Given these market dynamics, in the U.S., anyway, the coal industry hardly contributed to the data business in 2015 (except for some activity related to rebalancing of the PRB assessments and freight) and no crystal ball is needed to foresee that the coal industry will face major cutbacks in the near future.

To top it all off, in 2015, natural gas surpassed coal in power production. According to the EIA, over the last five years, natural gas’ monthly share of the U.S. electricity generation has risen from about 25% to 35%, while coal’s share has dropped from about 40% to 30%. In fact, the same environmental agenda that is strangling the coal industry has been a positive impetus for natural gas producers. Despite persistently low prices, natural gas production continues and inventories have reached record levels. Although natural gas producers are taking a hit on profitability due to the low market prices, high demand from power generators helps keep them afloat.

The electricity industry was the most prolific newsmaker in 2015 with renewables as the belle of the power ball. Both wind and solar set generation records. Renewable and clean energy revolution spun into other industries and technologies: energy storage with Tesla’s home battery and a scalable utility-size pack, more electric vehicles, new efficiency technologies, and distributed renewables – just to name a few of the more prominent ones. Above all, integration of distributed renewable generators into the grid has impacted the industry the most. It affects the structure of the marketplace and players themselves. In 2015, the focus was on reshaping the utilities business model and changing the distribution tariff structure.

Tariffs for the new type of power supply flow – bidirectional – has been dealt with more affinity in states with stronger solar power markets. Year 2015 witnessed multiple discussions on different levels; however only two scenarios for net metering tariff were solidified in regulations. In Hawaii, regulators ended retail rate net metering for rooftop solar arrays and replaced the program with two options: a “grid supply” and a “self supply”. In California, regulators preserved retail rates with some changes, including a higher interconnection fee and non-bypassable charges.

Most utilities have been struggling with decreased revenues challenged by losses to distributed generation. Trying to recoup them, they have been requesting that regional regulators approve increases of tariff’s fixed charges. Such requests were frequently rejected or sent back for revisions. In year 2015, it became apparent that the existing tariff structure is not viable; however, no standard or unified balanced solution has been identified on the federal level.

With increasing volumes of off-grid generation, utilities have been struggling with deciding on what role to assume in deploying distributed generators. While no nation-wide regulatory base has been put in place, states, the most affected by off-grid generation, decided to take action on their own. New York state directed utilities to take a detached approach making them impartial controllers of the grid; utilities are banned from owning distributed generators. California regulators decided that utilities have to be more involved and fully engaged in the deployment process and ensure that distributed resources are deployed optimally on the grid.

The five-year tax credit extensions approved by Congress at the end of the year guarantee the continued growth of renewables into the future. In 2016 and beyond, the industry will have to come up with the solution on the new tariff model with the properly identified cost causation factors, redefine the utilities’ roles and responsibilities, whether it is removed or more involved, officially define new players in the market, such as aggregators and microgrid operators, and so on. Hopefully, federal regulators will finally decide to take the lead and clear up the uncertainty that has been pushing jurisdictions in opposing directions creating more regulatory and operational seams.

While the power industry has not produced many new data reports in 2015, the opportunities it has opened for new software and data management providers are unprecedented. The solutions are needed for heretofore unknown volumes of data collection, aggregation and completely new types of analysis, tracking bidirectional power flows, and a new model of billing. I am almost sure that the IT industry will solidify “energy solutions” as a separate branch, similar to IT security, Business Intelligence, or Enterprise Resource Planning.

Post a Comment


Next
Next

More Articles on Editorial

Data Smartens up in a Fog

Those who are part of the data management game can juggle terms like Hadoop, NoSQL, and RDBMS freely. However, for those who are not in the game, this lingo will likely carry the same meaning as a proclamation of goodwill ... Read more »

Data Security + Data Surveillance = More Data Business

In today’s fast paced business environment, risk is everywhere and data security is rapidly changing. However, few things remain unchanged: hackers will create more sophisticated scripts to get around your security fortresses trying to steal your identity, money, and corporate ... Read more »

August, the Month of Energy Sector Discontent

The eighth month of the year has historically been very special for the US energy sector. The Northeast Blackout of 2003, the Energy Policy Act (EPAct) of 2005, and the Clean Power Plan and Methane Emission Reduction Policy proposal of ... Read more »

Natural Gas Coasts Along, while Other Energy Markets Test Rollercoasters

I do not recall more confusion and misalignment in the energy sector as is happening now. Any correlation and interdependency that existed previously among oil, coal, natural gas, and electricity markets seem to have evaporated; a multiplicity of independent events ... Read more »

Intermittent Success in the Battle between Coal and Renewables

On June 29, 2015, industry newsmakers announced “a blow” to President Obama’s environmental plan. On that day, the US Supreme Court overturned the Environmental Protection Agency’s (EPA’s) Mercury and Air Toxics Standards (MATS) limiting mercury and other hazardous air pollutants ... Read more »

Tesla’s Off-grid Power Storage Batteries: More Questions on Load Forecasting and Data

Tesla’s announcement last month of new energy storage batteries was positioned to mark a major milestone on the road towards a clean and sustainable future. Storage that is on the end-user’s side is being viewed, at least by some, as ... Read more »

Crude Oil Transportation by Rail: More than the Industry Bargained For?

An announcement by the US Energy Information Administration (EIA) about the new set of oil statistics missed the spotlight. Really, what’s so special about adding another data report that only expands on the list of transportation options for the same ... Read more »

Nasdaq Adds to the Energy Derivatives Markets and Steps in against CME and ICE

I admire the valor of Nasdaq – daring to enter the energy derivatives market space that has been dominated by two giants, CME and ICE. Nasdaq, operating mainly in stock markets, though with some exposure to European power markets, decided ... Read more »

Data Sources: NASDAQ OMX

The Emerging Power Markets’ New Player – the Microgrid Operator

The concept of microgrids is gaining momentum; their share in the energy space is growing. The microgrid is not a novel concept, as in most remote communities self-containment is the only feasible approach to power supply. For many years, localities without ... Read more »

State of the Union Address: Dominating the World Energy Markets and Losing to Congress

The State of the Union Address, the speech delivered by the US President at a joint session of the US Congress, is the most highly anticipated public announcement of the year for many industries, including energy. But the state of ... Read more »

 

Page 1 of 512345