In May, PJM Interconnection announced that it had attracted a record amount of new generation at its recent annual capacity auction, which ensures that electricity supply will meet demand for the period June 1, 2016 through May 31, 2017.  The auction procured 5,463 megawatts (MW) of new generation, thus breaking last year’s record amount of 5,346 MW.  In addition, the auction obtained a record amount of imported power from the Midcontinent ISO (the new name for MISO, reflecting the grid operator’s southward expansion), more than doubling last year’s total. All in all, the auction procured 169,160 MW, resulting in a reserve margin (a cushion for unforeseen events) of 21.1%, or 5.5% above the target.

PJM holds this capacity auction – also referred to as the Reliabity Pricing Model (RPM) – every May in order to obtain sufficient electricity, plus a reserve margin to meet expected demand for power 3 years in the future in PJM’s territory. PJM provides its estimate for peak power use to the bidders who then bid their existing and new power plants as well as energy efficiency and DR resources. Their bid prices are based on the costs to have those resources available for a particular delivery year. The price bid by the final resource that meets PJM’s target establishes the price paid – the clearing price – to all resources in that zone.

Most noteworthy, this time, was PJM’s announcement that the level of demand response (DR) procured in the auction had dropped by about 2,400 MW, after years of continued growth at every auction.  The auction cleared 12,408 MW of DR.  “Limited DR,” which can only be dispatched 10 times a summer for up to 6 hours each time, represented the overwhelming majority (9,800 MW) of the demand-side resource.

Shortfalls Possible

The main reason for the DR procurement decline was considerably lower capacity prices in most of PJM’s territory this year.  For example, the MAAC region, which covers 10 utilities along the Atlantic seaboard, cleared a price of $119.13 per MW-day, a drop from $167.46 per MW-day in 2012.  FirstEnergy, in northern Ohio, and western Pennsylvania’s PennPower cleared a price of just $59.37 per MW-day, compared to $136 per MW-day last year.

According to PJM’s Senior VP of Markets, Andrew Ott, prices dropped simply because supplies were up while demand was flat.  Competition from new natural gas supplies, increased imports from other regions, and less demand for electricity due to a sluggish economy have put pressure on capacity prices.  Another factor affecting the demand for DR has been the higher procurement costs for aggregators, as they look to recruit new potential and often hard-to-reach customers to participate in their capacity programs.

Although the supply of power and reserve margins are good enough to meet the demand for electricity in PJM’s territory and most other regions of the United States this summer, a few areas in the country could be facing severe shortages that will drive the need for DR.  ERCOT in Texas, for example, is dealing with tight reserves with a margin that is 0.85% below its target.  If the state experiences another extreme heat wave like the summer of 2011, ERCOT would most likely face a challenge to meet its peak demand.  Thus, the grid operator is planning to expand its DR programs to increase the current 1,700 MW of DR.  In Texas, DR is seen as the first line of defense to beat the heat.

China has now outpaced the United States as the world’s biggest emitter of greenhouse gases (GHG).  With a power sector that relies heavily on coal and continued aggressive construction of coal-fired power stations, the country currently accounts for almost 50% of global coal consumption.  According to the European Commission’s Joint Research Centre, China’s carbon emissions increased 9% in 2011 to 7.2 tons per person.   This figure is only slightly less than the European average of 7.5 tons – though significantly less than the average American at up to 17.3 tons per person.

Realizing the need to address the country’s serious GHG emissions problem – especially with record smog levels in Beijing – the Chinese government is taking a number of steps.  It plans to add 49 GW of renewable energy capacity this year and develop an energy plan with the goal of gradually transitioning from fossil fuels to cleaner energy sources, such as hydropower and intermittent resources like wind and solar power.  In 2012, about 15 GW of wind and 3 GW of solar energy capacity were added.

New Lows

Most noteworthy is the government’s effort to curb CO2 emissions by initiating a new carbon emissions trading pilot scheme.  It is set to launch seven such pilots in various cities and provinces this year that are expected to eliminate at least 700 million tons of annual emissions.  The first pilot will be kicked off on June 17 in Shenzhen (southern China) to initially include 635 companies that were responsible for 38% of the city’s total GHG emissions in 2010.  This pilot scheme will create the second-largest carbon trading scheme in the world, after the European Union Emissions Trading System (EU ETS).  Beijing and Shanghai may soon follow suit, though neither city has scheduled a launch date yet.

It remains to be seen if the Chinese carbon trading program will be as successful as the EU ETS scheme, which has indeed reduced carbon emissions since it was initiated in 2005.  But will China, like the EU, eventually face the challenge of a growing surplus of allowances?  Recently, the European Parliament proposed to delay the release of 900 million CO2 emission permits in order to stop over-flooding an already saturated market (mainly caused by the economic recession, which has depressed emissions more than anticipated) – a decision that was narrowly defeated soon thereafter in a parliamentary vote because of fear of raising costs for businesses in a sluggish economy.  Earlier this year, permits traded at below €3 ($3.90) a ton – compared to €7 ($9.10) a ton last year and €25 ($32.50) a ton in 2008.  Shortly after the vote, carbon allowances dropped to €1.70 ($2.20).  It is clear that carbon trading can be fraught with problems, and the Chinese market will undoubtedly face its own unique issues in the years ahead.  Still, China should be able to draw upon the EU’s experience and its hard-won lessons.

Although utility prepayment programs are not yet a major market in the United States, which lags behind many other countries that have offered such schemes for decades, Navigant Research has forecast that the North American electric prepaid metering market will grow rapidly over the next several years, expanding at a robust compound annual rate of about 23% from 2013 to 2018.

The Salt River Project (SRP) in Phoenix, Arizona, a prominent trailblazer of prepay, has operated prepaid electric services under the M-Power brand for 20 years. Today, about 126,800 residents are enrolled in SRP’s prepay plan, more than 12% of the residences that it serves.  M-Power customers have consistently demonstrated a high level of customer satisfaction in surveys by the utility, but most noteworthy has been their overall reduction in electricity use: around 12%.  Despite SRP’s results and similar finding by other utilities, establishing a reliable and statistically proven link between prepay and energy usage is still difficult.  However, a recent study led by consulting firm DEFG shows a strong positive correlation between prepayment of energy bills and conservation behavior.

Impressive Savings

Using consumer data from Oklahoma Electric Cooperative (OEC), which launched prepay services in 2006, to compare post-pay and pre-pay customers, the study concludes that participants in prepaid plans on the average reduce their energy usage by 11% (about 1,690 kilowatt-hours per year for an OEC customer) ‑ very similar to SRP’s findings. Compared to other energy efficiency measures ‑ and considering the relatively low cost of implementation, from a utility standpoint, and the ease of adoption for customers (there’s no need to purchase a special energy efficiency device, for instance) – this is an impressive figure.  Since the average monthly bill for OEC’s customers is $146, an 11% energy saving translates into a $192-per-year reduction on the customer’s utility bill.

The energy use reductions can be attributed to several factors, including increased awareness of when and how electricity is consumed.  The study also demonstrates that regular (even daily) communication from the utility to the customer that provides actionable information (usage tied to dollars and cents) changes consumption behavior.

This data provides strong evidence that electric prepayment is a winning proposition for both utilities and consumers, and it should convince more utilities to offer prepay options.  What’s more, according to a recent national survey of 1,000 individuals, 38% said that they were interested in prepaid electric services.  This shift is long overdue.

In his State of the Union address, President Barack Obama said he would take unilateral action to limit climate change.  He declared, “If Congress won’t act soon to protect future generations, I will.”  Obama’s new resolve raised hope that the United States will finally move forward to address climate change by regulating greenhouse gases (GHG).  So, what are the prospects for meaningful legislation?

So far, efforts in Congress have focused on a carbon tax, which some Democratic legislators describe as a win-win proposal that would reduce carbon emissions while generating significant additional revenue to reduce the federal budget deficit.   In February, Independent Bernie Sanders of Vermont and Democrat Barbara Boxer of California proposed a bill to tax carbon emissions and raise $1.2 trillion in revenue over 10 years, most of which would be returned to consumers.  And on March 12, four Democrats from the House and Senate – Representative Henry Waxman (D-CA), Senator Sheldon Whitehouse (D-RI), Representative Earl Blumenauer (D-OR), and Senator Brian Schatz (D-HI) – introduced a related draft bill to put a price on carbon emissions by charging the nation’s largest polluters a fee for each ton of GHG they emit.  The latter proposal attempts to minimize the compliance and administrative burden and costs by leveraging the resources of existing U.S. agencies, such as the Environmental Protection Agency (EPA) and the Treasury.  Predictably, a few days later 105 Republican members of Congress introduced a resolution opposing a carbon tax, citing increased energy prices and a negative impact on the U.S. economy.

Small Ball

Acknowledging that the passage of a carbon tax is unlikely, Obama apparently has given up on pushing for a comprehensive climate change policy and is pursuing smaller-scale projects that won’t require new sources of revenue.  For example, he is proposing to divert $2 billion over the next 10 years in oil and gas royalties to fund alternative fuel research as part of the administration’s Energy Security Trust.  Obama is also expected to set new guidelines for all federal agencies to follow as they consider the effects of major federal projects on air, water, and soil pollution.  These guidelines are currently being reviewed by the White House’s Council on Environmental Quality and may require agencies to consider the impacts of global warming – e.g., increases in GHG and the potential for flooding, drought, or other extreme weather – before approving major projects such as the development of new pipelines and highways.

While lawmakers wrangle about climate change, atmospheric carbon dioxide (CO2) continues to rise.  According to the National Oceanic and Atmospheric Association, global CO2 levels jumped in 2012, increasing to 395 parts per million – the second biggest increase since record keeping began in 1959.