Massachusetts Energy Trends & Opportunities
Controlling Massachusetts’ Energy Future
Escalating prices for electricity, natural gas and home heating oil are hurting consumers at every economic level and are diminishing the prospects for our state economy. Consider the following facts:
• • • •
The average household in Massachusetts has seen the commodity portion of their heating oil bill go from $600 in 2003 to over $1,200 this past year. Natural gas consumers have watched as the commodity portion of their bill has risen from around $600 in 2003 to over $850 last year. Electricity prices are up by more than 50% since 2002 and further increases on the way. The money that Massachusetts consumers spend on increased fuel costs flows directly toward energy producing states and foreign countries around the globe. Last year alone, this energy trade deficit for Massachusetts exceeded $6.1 Billion. The following tables and graphs will help to illustrate the situation that we face as energy consumers here in Massachusetts and it will also illustrate how investments in energy efficiency are the best way to take control of Massachusetts’ energy future and lower costs for consumers, create local jobs and recapture billions of dollars that we lose each year that can be reinvested in our State’s economy.
•
ISO New England Historical Wholesale Electric Prices vs. Natural Gas Commodity Prices
There is a clear correlation between rising electric prices and natural gas prices (natural gas and gas/oil power plants set the price for electricity 87% of the time in New England), with the price of oil & natural gas being outside of the state’s control and likely to stay high. Weather is the key driver of peak demand days and short-term expensive price spikes.
150 15
125
12.5
100
10
75
7.5
Electric Price Linear Trendline
50 5
Electric Price - ISO New England Hub
25
Sources: Electric - ISO New England, ECP Prior to Feb 2003 and Real Time Hub LMP March 2003 until present Natural Gas - EIA and NYMEX
Natural Gas Price - Spot Market (Henry Hub) Natural Gas Futures - NYMEX (8/4/06) Linear (Electric Price - ISO New England Hub)
2.5
0
12 /31 /2 00 0 12 /31 /2 00 1 12 /3 1/ 20 02 12 /3 1/ 20 03 12 /30 /2 00 4 12 /30 /2 00 5 12 /3 0/ 20 06 12 /3 0/ 20 07 9/ 20 08 1/ 1/ 1 1/ 1/ 2 9/ 20 09 99 9 00 0
0
Date
August 22, 2006
12 /2
12 /2
Monthly Average Natural Gas Commodity Price ($/Mcf)
Daily Avg. Real Time Electric Price ($/MWh)
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Projections of Future Electricity Prices
ISO New England in their 2006, Electricity Costs White Paper, indicates that the primary uncertainty associated with future electric prices is the price of natural gas(NG); the following shows four electric price scenarios with natural gas prices declining, staying flat, increasing by 5% per year, and by 10% per year. The price of natural gas is likely to be as high, or higher than today for the foreseeable future (see futures prices in the previous figure). In 2003, customers were paying $110/MWh (11 cents/kWh) for electricity – those days are over as future price estimates range from $149 to $224 per MWh.
250 224.4
194.9 200 176.6 188.1 165.10 151.6 98.5 75.5 59.1 149.0 105 165.4 134.5
Delivered Electricity Price Forecast ($/MWh) 150 Energy Capacity Transmission Distribution
50 100
156.3
75.5
62
75.5
87
8.3 3.6
14.3 6.3
14.3 6.3
14.3 6.3
14.3 6.3
14.5 6.4
14.5 6.4
14.5 6.4
14.5 6.4
68.9
69
69
69
69
69
69
69
69
0
EIA NG Forecast 2006 Flat NG Prices 5% Yearly 10% Yearly NG Increase NG Increase 2010 EIA NG Forecast Flat NG Prices 5% Yearly 10% Yearly NG Increase NG Increase 2015
Source: ISO New England: Electricity Costs White Paper, June 1, 2006. All prices are forecast by ISO NE ecept that ENE has doubled the 5% natural gas price increase to represent a scenario in which natural gas prices increase by 10% per year
Projections of Future Massachusetts Electric Energy & Capacity Costs
Future electric energy costs are uncertain with costs driven by natural gas prices and changes in energy consumption; capacity will cost MA significant amounts of money in the coming years, but energy costs in the billions of dollars will dwarf this. (Note: this chart does not include transmission & distribution costs)
$12,000
Massachusetts
Energy Costs - High Price Scenario (NG Prices Rise 10% per year)
$10,000
Energy Costs - Low Price Scenario (Natural Gas Prices Constant) Capacity (FCM) Costs
Source: ENE calculations based on ISO New England, 2006 Forecast Data File (Base) and 2006 Electricity Costs White Paper
Total Energy & Capacity Costs (Million $)
$8,000
Band of Cost Uncertainty Driven by Assumptions about Future Natural Gas Prices
$6,000
$4,000
$2,000
$0
20 05 20 06
$498
20 07
$577
20 08
$660
20 09
$896
$913
$930
$944
$959
$973
20 10
20 11
20 13
20 14
Year
August 22, 2006
20 12
20 15
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Massachusetts Spending on the Commodity Portion of Natural Gas
Natural Gas prices are up significantly over the past few years and every dollar the state spends on fuel (not distribution costs) leaves the region and is no longer available to invest in the state economy. As a result, the natural gas trade imbalance has gone from $2.9 billion in 2003 to $3.8 billion in 2005; the average annual residential natural gas cost, for the commodity only, in Massachusetts has gone from approximately $600 in 2003 to $850 in 2005 (commodity only).
$5,000,000,000
Massachusetts
$4,500,000,000
Annual Commodity Expenditures on Natural Gas
$4,000,000,000
Electric Industrial Commercial Residential
Note: Does not include distribution costs
$3,500,000,000
$3,000,000,000
$2,500,000,000
$2,000,000,000
$1,500,000,000
$1,000,000,000
$500,000,000
$0
2003
Source: Energy Information Administration Assumes City Gate Prices
2004
Year
2005
New England Fuel Oil Price Trends
As the price of fuel oil also rises, the majority of these dollars are also leaving the region. While commodity costs have skyrocketed, the cost of distribution and delivery has remained relatively constant.
350
300
New England (PADD 1A) No. 2 Heating Oil Residential Price
250
New York Harbor No. 2 Heating Oil Spot Price FOB
Price (Cents per Gallon)
200
Portion of the Price for Distribuition, and Delivery (taxes not included) Portion of the Price that Leaves the Region
150
100
50
Source: Energy Information Administration
0 1/1/90
9/27/92
6/24/95
3/20/98 Date
12/14/00
9/10/03
6/6/06
3/2/09
August 22, 2006
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Massachusetts Spending on the Commodity Portion of Fuel Oil (Stationary Uses)
Fuel Oil prices have also skyrocketed in the past few years with every dollar the states spends on fuel (not distribution costs) also leaving the region and no longer available to invest in the state’s economy; the fuel oil trade imbalance has gone from $1.5 billion in 2003 to $2.3 billion in 2005; the average annual residential heating oil bill in Massachusetts, for the commodity only, has gone from approximately $600 in 2003 to $1,200 in 2005 (commodity only).
$3,000,000,000
Massachusetts Electric - Distillate Electric - Residual Industrial - Distillate Industrial - Residual Commercial - Distillate Commercial - Residual Residential - Distillate
Note: Does not include distribution costs or any transportation, farm, or other mobile $1,500,000,000
Annual Commodity Expenditures on Fuel Oil
$2,500,000,000
$2,000,000,000
$1,000,000,000
$500,000,000
$0
2003
Source: Energy Information Administration Assumes New York Harbor Spot Market Price
2004
Year
2005
Energy Efficiency is the Answer - Electric Generation vs. Energy Efficiency Costs
The figure below compares the cost to save consumers a unit of energy versus to cost to supply an additional unit of energy; Massachusetts spends over $4.6 Billion dollars on supply of electric energy while investing only $120 Million in energy efficiency; we are not investing in the cheapest resource.
100
Electric Efficiency & Supply Costs ($/Lifetime-MWh)
80.0
80
Source: CEEF (CL&P & UI) 2006 Plan and MA DOER 2002 EE Act. for efficiency; ISO New England 2005 Annual Markets Report for supply
60
44.0
40
30.0 28.0
20
12.0
0
Energy Price (ISO-NE 2005 Avg. LMP) Supply
MA (2002) Residential
CT (2005)
MA (2002) C&I
CT (2005)
August 22, 2006
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2002 Results – Massachusetts Electric Efficiency Programs 1
Annual Investment: Energy Savings: Demand Reduction: Economic Benefits: $113 million 3,427,000 MWh (Lifetime) ; 241,000 MWh (Year 1) 48,000 kW $250 million in avoided energy bills (Lifetime); $18 million in avoided energy bills (Year 1) Generated $3 in lifetime savings (today’s dollars) for every $1 spent (C&I) Created approximately 1,778 non-utility jobs $139 million increase in Gross State Product (2002 alone) $62 million increase to disposable income (2002 alone) 219,333 residential customers 2,897 small business customers 2,955 commercial & industrial customers Pollutant CO2 NOx SOx Programs Include: 2002 161,205 tons 135 tons 394 tons Lifetime 2,256,870 tons 1,890 tons 5,516 tons
Customer Assistance to:
Emissions Reductions:
Retrofit programs/home services, new construction, market products and services, educational programs, and load management programs.
Energy Efficiency is the Answer – There is a Large Untapped and Low-cost Resource
The maximum achievable electric efficiency potential report for Connecticut, commissioned by the CT Energy Conservation Management Board, indicates that they can reduce load growth in the state to zero and save consumers $1.8 billion; all of this efficiency resource is available at lower cost than supply and only becoming more cost-effective as energy prices rise. 2 All states in New England have a similar untapped efficiency resource.
Existing Program Results
Achievable Potential
1 2
MA DOER, “2002 Energy Efficiency Activities,” Summer 2004. Source: GDS Associates/Quantum Consulting, 2004, Maximum Achievable Potential Report, available at the ECMB web site : http://www.state.ct.us/dpuc/ecmb/ August 22, 2006
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Energy Efficiency is the Answer – Natural Gas Supply vs. Energy Efficiency Costs
The figure below compares the cost to save consumers a unit of energy versus to cost to supply an additional unit of energy; with the increases in natural gas supply costs, energy savings can now be delivered for a fraction of the cost of additional energy supply, keeping energy dollars at home. Massachusetts existing natural gas efficiency programs should deliver energy savings at a similar cost.
12
Natural Gas Efficiency & Supply Costs ($/Lifetime-Mcf)
9.7
10
Source: CEEF (CL&P & UI) 2006 Plan for efficiency; ISO New England 2005 Annual Markets Report for supply
8
6
4
2
1.0
0
Energy Supply Prices (EIA Avg. CT City Gate Price 2005)
Energy Efficiency (VT Gas 2004 Annual Report)
Energy Efficiency is the Answer – Natural Gas Efficiency Programs Deliver
Massachusetts’ natural gas efficiency programs should deliver benefits similar to those seen in Vermont.
2004 Program Results – Vermont Gas Systems, Inc Demand Side Management Program Annual Investment: $1.1 million 1.8% of Total Revenue (2003) 57,000 Mcf (Annual) 1,168,000 Mcf (20 Year Lifetime) 480 Mcf Peak Day Savings $ 390,000 Saved (Annual) $ 8 million Saved (Lifetime, not discounted) Programs open to all customer classes on system 1,640 homes and businesses installed energy efficiency measures Pollutant CO2 NOx SOx Awards: 2004 3,300 tons 2.6 tons 1.1 tons
3
Energy Savings:
Demand Reduction: Economic Benefits:
Customer Assistance:
Emissions reductions (Tons):
VGS received the EPA/DOE Energy Star Leadership in Energy Efficiency in 2004. In recent years, more than 50% of residential new construction in the utility’s service territory has met ENERGY STAR Qualified Home standards.
3
Source: Vermont Gas Systems, Inc., “2004 Annual Report: Demand Side Management Programs,” 2005, p. EXE-1. August 22, 2006
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