Back Home* – Electricity Prices After the Mild Winter of 2015/2016

After a year away on my sabbatical in Botswana where I spent my time researching off-grid solar systems and learning about energy challenges in Southern Africa, I have returned home and am back to teaching and doing research at Franklin Pierce University. My time in Botswana was interesting, complicated, frustrating, and ultimately very rewarding. I had the opportunity to meet some very interesting people, I visited solar installations in some very unique and remote places, and was involved in the installation of a 20 kW photovoltaic system in a village just outside of Gaborone, the capital of the country. During my time in Botswana, I developed a far more nuanced understanding of the challenges associated with energy supply and demand in the developing world and learned to appreciate the reliable and inexpensive electricity and water supplies we have here in the US.  

Even though I plan to continue my interest in Southern African energy matters, I am now focusing again on NH energy issues. I thought it would be fitting to start where I left off a year ago and take a look at electricity prices and what the future might hold, especially after the mild weather experienced in New England last winter.

When looking at electricity prices, I always start by looking at wholesale prices. We have a very dynamic market for electricity in New England because we have a formal and well-run market organized by the independent system operator in New England, ISO-NE. (See my blog Extraordinary Machine to learn more.) We have 350 generators of electricity bidding to sell their electricity into the market. This includes nuclear power plants, coal, natural gas- and biomass-fired operations, as well as wind, solar, and hydro. This all makes for an interesting and dynamic market.

The figure below shows historical wholesale prices for electricity going back to 2010. It is interesting to note that, after three winters of spiking electricity prices, prices were very calm this past winter. This resulted from several factors.

Source: EIA

 First and most important, it was a mild winter – some have called it the winter that wasn’t (while I was away in Africa, my snow blower only received one workout). A good indication of how mild the winter was comes from examining the heating degree days (HDDs) (see A Hundred and Ten in the Shade for an explanation of heating degree days). The chart below shows HDDs for the past 12 years. We normally experience about 7000 HDD over a year (July to June) in NH and 6000 for the whole of NE; this past year, the values were ~15% lower, with values of 6000 and 5300, respectively. That was indeed a whole lot warmer, but I was taken by surprise that the HDD values for 2012/13 indicated an even warmer winter that year. Like many other folks, I tend have a short memory about past winters, except when they are extreme, but the data show that the winter of 2012/13 was the warmest in the past 12 years – at least as measured by HDDs values. An examination of the wholesale prices for that winter in the figure above shows some daily prices spikes, but nothing to the degree we experienced in the following three winters.

Source: ISO-NE

The other key driver for low electricity prices is low natural gas prices. Over the past winter, ~55% of the electricity produced in New England was from natural gas: as a result, natural gas prices had a big impact on what we paid for electricity. The two big uses of natural gas in NE are for home heating and electricity production. With the mild winter, there was enough natural gas to go around for both heating and generation. Daily prices did not spike, which was quite different from previous years. The figure below shows the extraordinarily tight correlation between natural gas prices and electricity prices in NE – when natural gas prices spike so do electricity prices.

Source: ISO-NE

Wholesale prices for electricity are presently of the order of 2 c/kWh. This is great, but what are the implications for us as retail electricity customers? Well, less positive than we would like. In NH this past winter, retail electricity prices were in the region of 18c/kWh, almost 9 times the wholesale rate, as shown in the figure below.

Source: EIA

It is important to appreciate that wholesale electricity prices are a small component of what we, as rate payers, shell out for electricity. Baked into the retail rates are a host of charges: there are charges to pay for the transmission and distribution networks; there are long-term contracts that the utilities have entered to purchase electricity (most likely at higher than 2 c/kWh); there are overheads, salaries for the utility company employees, etc.; and, in the case of Eversource, there is the cost of operating their generating facilities – which produce electricity for a whole lot more than 2 c/kWh. On top of this is the profit that the regulated utilities are allowed to earn on their investment in infrastructure. It is a long list of costs and additional charges that gets us all the way from 2 to 18 c/kWh and well worth a closer look in a future blog. It turns out that the utilities from which we buy our electricity end up buying a relatively small portion of their electricity from the wholesale market – a lot of their supply is from long-term contracts that they signed up for years ago. Of course, when wholesale prices are low we don’t like this but, when prices spike up to 45 c/kWh, as they did in the winter of 2013/14, we are quite grateful that our electricity suppliers have locked into lower cost long-term contracts.

Despite last year’s mild winter weather, if this upcoming winter were to be a very cold one, we should expect to see spikes in both natural gas prices and wholesale electricity rates that will impact what we pay for electricity. ISO-NE has taken some important steps in New England to mitigate these spikes through their winter reliability program and by increasing storage of liquefied natural gas, but we have not taken any steps to significantly increase natural gas supply. If we have a very cold winter again, we will see price spikes and then we will go through another round of handwringing and planning for increasing natural gas supply. The truth of the matter is that we do not have a long-term view about our energy supply here in New England. Plans to increase natural gas supply have been scuttled due to opposition or our desire to have the pipeline companies take all the risk. These are both good reasons for not increasing supply, but we must bear in mind that most existing energy infrastructure in the US has been built with some government intervention via regulated monopolies. Ultimately, every one of those infrastructure investments impacted somebody somewhere. If we do not want to invest in energy efficiency, we as energy consumers will end up paying in one of two ways: we will pay for infrastructure investments through costs and direct impacts on our property, our environment, and way of life, or we will suffer the consequences of not investing in infrastructure and creating unreliable supply conditions. Ultimately, it is our choice.

I like to take a look at what the futures markets are predicting for NE electricity prices and, even though futures markets are about looking forward, I also like to look back at their prices from the previous year and see how things have changed, especially with the warm winter we had. The figure below is a comparison of the future prices from last year with those at present. It is clear that there has been some change in the market’s view of upcoming electricity prices. As usual, we are seeing a market forecast of winter price spikes, but, compared with last year, the spikes are smaller and the base-line prices are also lower. This chart also gives one a sense of the challenges the utility companies face as they look to lock in sufficient electricity to supply us over the coming years. Do they secure long-term higher-priced electricity contracts, do they subject us to the whims of the short-term markets and maybe prices won’t spike again like last winter, or do they mitigate potential price spikes by buying insurance through futures contracts. These are important and challenging decisions that the utilities make under regulatory supervision because ultimately it is NH ratepayers that end up paying for whatever choice they make. What would you do?

Source: CME

As we consider the consequences of choices, I am going to wrap up this data-heavy post with an updated chart for default electricity rates for the four NH regulated electricity utilities. (Remember that default rates only reflect the retail costs of electricity and do not include the distribution costs.) These rates, shown below, are a direct reflection of the choices the utilities have made, under regulatory mandates, regarding the sourcing of electricity. Presently, PSNH default rates are substantially higher than those of Liberty, Unitil, and the NH Electric Cooperative. The rates for PSNH presently reflect the high costs associated with operating their own generation facilities, including the coal-fired Merrimack power plant. Even though there have been times that the rates for the other utilities have been higher than those for PSNH (due to wholesale market price spikes), their default rates have generally been lower. Now that the divestiture of the PSNH generating assets has finally started, it will be interesting to follow how PSNH’s rates in the future will compare with those of the other NH utilities.

Source: NH PUC

That wraps it up for this post. It is good to be back teaching in NH and learning about statewide energy matters. Feel free to email me to suggest topics for future blogs and, in the meantime, remember to turn off the lights when you leave the room.

Mike Mooiman

Franklin Pierce University

mooimanm@franklinpierce.edu

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*Back Home A great upbeat singalong tune by Andy Grammar. 

Cold Ground* - Considerations for Geoexchange Projects in New Hampshire – Successful Projects and Cautionary Tales

This week we are following up on my last post on geothermal energy. In this article, I take a look at the successful implementation of a large geothermal project in New Hampshire. I also present a number of issues that impact the implementation of these projects here in New Hampshire that you should keep in mind when you get ready to harness the energy in the cold ground beneath our feet.  

In last week's post, I pointed out that what we call geothermal energy here in New Hampshire should more correctly be called geoexchange. We are not using the energy deep in the earth's crust to generate steam which can be used to generate electricity: instead, we are harnessing the moderate temperatures that lie six or more feet below the surface. Using ground-source heat-pump systems we can harvest this low temperature energy as a heat source to heat our homes in the winter and then, in the summer months, we use the earth as a heat sink by pumping the excess heat in our homes into the ground. It takes energy in the form of electricity to harvest this low grade energy, but with modern heat-pump devices we can draw more energy from the earth than we consume as electricity to run these devices. It is also necessary to remember that the actual source of this energy comes from solar radiation warming the earth's surface, so geoexchange is, in effect, an indirect form of solar energy.

Geoexchange systems are used in a variety of applications, from the heating and cooling of individual homes to large systems that are used to condition multi-building college and hospital campuses. It is a technology that is finally beginning to make headway even though it has been available since the 1940s. Twenty years ago the EPA noted that "Geothermal exchange systems are the most efficient, environmentally clean, and cost effective space conditioning system available." Millions of systems have been installed worldwide, and there are probably between 1000 and 2000 of these units installed in NH alone, most of them in private residences.


A great example of a large and successful geoexchange project is that installed near Boscawen, NH, at the Merrimack County Nursing Home. This is a long-term care facility that houses about 290 residents and it has a staff of 480. It is 235,000 square feet in size and it is a thoroughly modern, well-designed and sophisticated operation providing long term care in a positive caring environment. It is the largest facility of its type in New Hampshire. A picture of the facility is shown below.
  

Source:http://www.merrimackcounty.net/nursinghome/about.html

 
The whole building is heated and cooled by a ground-source heat-pump operation. When the design of the facility was undertaken in 2005, there was an early commitment by the design team that the facility would incorporate a geoexchange system to heat and cool the facility. The result was a well-designed building that uses water drawn from 16 standing wells on the property to circulate through 326 individual heat pumps which draw the energy out of the 60^oF well water in the winter. The well water, except for a small bleed stream, is returned to the wells at 55^oF. This same system is used to provide air conditioning over the hot summer months. There is a heat pump in each of the residents’ rooms, and the residents are able to adjust the temperatures in their rooms to between 68^o and 75^oF.

During the commissioning stage, the geoexchange implementation team, as on any large-scale project, had to deal with a slew of start-up problems associated with the heat pumps, reliable circulating water pump performance and electrical wiring issues, but over time these were all solved. The system now runs smoothly and maintenance issues are few and far between. The EUI number for the present facility is about 60 kBTU/sq. ft. The US average for equivalent nursing home operations is, according to the 2003 Commercial Building Energy Consumption Survey, 124 kBTU/sq. ft. which means this nursing home has an energy foot print one-half that of its peers. Impressive performance indeed!

I had the opportunity to take a guided tour of their operations with the administrator of the nursing home, Lori Shibinette, and her facility staff. Lori is a recent graduate of Franklin Pierce University's MBA program and she is justifiably pleased at what her team has been able to accomplish with the geoexchange operation. They have no back-up fossil fuel heating system and they are solely dependent on the geoexchange system for heating and cooling and keeping 290 residents comfortable. To ensure reliable 24/7/365 operation, the system incorporates backup pumps and wells. In the case of an interruption of the electrical supply, they do have a diesel fired back-up generator on site to keep the lights on and the geothermal system running. At the start, the maintenance team was a little skeptical of the operation but they are now big fans of geoexchange system. In contrast to most boiler rooms I have been in, the main geothermal exchange control hub was a quiet clean operation with a number of pumps, a large piping manifold, and a computer-monitored control network. A picture of part of the piping manifold is shown below.

 
Costs for the geothermal operation were approximately 3% of the overall investment for the new building, which is right in line with similar systems, and the calculated payback ranges between 2 and 4.5 years, depending on what assumptions one uses. Regardless, five years after the installation, the extra costs have been recovered and the facility will now for a long, long time benefit from their low EUI and the attendant energy and costs savings. This is clearly a well-conceived and -implemented project that has delivered on its performance.

Let's turn now to a topic that has been on my mind a lot the past few weeks: the installation of a geoexchange system for a stand-alone residence. In this case, the incremental cost of a ground-source heat-pump system is a larger percentage of a new home construction project, making the investment a little more challenging to justify. As a result, homeowners need to put a lot of thought and analysis into their decision whether to install a ground-source heat-pump system or not. That is exactly what I have been doing by reading and chatting to folks about geothermal systems. As fascinated as I am by the technology, I have learned that there are a number of crucial considerations to take into account.

One of the considerations is that here in NH we have a somewhat unbalanced energy load when it comes to conditioning our homes. In my post, A Hundred and Ten in the Shade, I wrote about heating and cooling requirements in NH as indicated by heating degree days (HDDs) and cooling degree days (CDDs) and I noted that in NH we have a heating-dominated energy load as we need much more heating than cooling. In Florida, the situation is exactly opposite. This is shown by the figure below which provides the typical annual HDD and CCD day requirements for New Hampshire and Florida.

These unbalanced winter and summer energy loads can cause problems with geoexchange systems. In the winters here in NH, a geoexchange system is constantly drawing heat out of the ground to compensate for the 6000 HDDs. As a result, ground temperatures around the ground loops drop, and in poorly designed systems the heat pumps can actually draw so much heat from the surrounding ground that the ground below the surface can freeze. In winter, ground temperatures can drop to below 32^oF in closed loop systems, which is why these systems usually use antifreeze as the circulating liquid and why they must be designed and sized to operate at very low ground temperatures.

In summer, the reverse happens and heat is drawn out of the building and pumped into the ground and, as a result, the earth around the heat-pump circulating system heats up and can run as high as 75^oF for closed-loop systems. The concern with a heating-denominated load is that the heat drawn out of the surrounding area in the winter will not be compensated by solar radiation and the heat pumped into the area during the summer months during the cooling cycle:  one could ultimately get a long-term drift to lower ground temperatures which will compromise the operation of the heat pump. A well-designed ground-source heat-pump system takes these factors into account by considering the thermal conductivity of the ground and surrounding rock and ensuring that the ground loop system is provided with sufficient volume to avoid long-term temperature changes in the surrounding rock.

 In warmer areas, such as Florida, where there is a cooling-dominated load, the reverse can happen. So much heat can be drawn out of the building during the cooling season and pumped into the earth that the ground temperatures rise. On top of this you have surface ground warming from the warmer temperatures all year round and in these systems one can see a long-term drift upwards of the temperatures in the ground which compromises the performance of these ground-source heat-pump units. The figure below shows the temperature fluctuation of a closed loop system over a number of years at Stockton College in New Jersey. This was an early large-scale closed-loop system, installed in the 1990s, that had a cooling-dominated load. Over time, the ground temperatures drifted higher and eventually a cooling tower had to be installed in the geoexchange circuit to relieve some of the heat build-up in the ground.

Source: http://www.neiwpcc.org/waterresourceprotection/wrp_docs/Stiles-GeothermalatStocktonCollegeNJ.pdf

These ground temperature drift problems tend to happen more with closed-loop systems. In standing well open-loop systems the temperature swings are more moderate, ranging from 45^oF in the winter to 65^oF in the summer. Open-loop systems rely more on the temperature moderating properties of the water table. Water conducts heat better than earth or granite and slow introduction of fresh water into an open-loop system by movement of the water table and the bleed stream helps to further moderate temperatures. However a good understanding of geologic characteristics and local underground water flow is required beforehand and for these systems a test well is often drilled.

Clearly, as you can see from the discussion above, there are many critical technical considerations involved in the installation of geothermal system. Installing a high performing and reliable system requires proper design and engineering, an experienced geothermal installer and a willingness to avoid "cost savings" shortcuts. Quite frankly, this is not something that you can just rely on your local HVAC contractor to install. Involve a geothermal expert in the design of your system to ensure the equipment you are installing is not undersized or oversized.

Design of a geoexchange system is a task that involves a compromise between the geological characteristics of the area, the heating and cooling loads, the specified equipment and a natural desire to keep installation costs down. Installation costs need to be managed and you need to be very involved but, before you even start, take a look at what you can do to reduce heat loss from your building. Money spent on better insulation and improving the building envelope will help reduce the size and cost of a geoexchange system. Installation costs can then be further reduced by taking advantage of the federal and state incentives. The Federal government provides a tax rebate of 30% for the cost of a geoexchange system and, if you are a customer, PSNH will contribute up to $4500 of the costs through their Energy Star program.

The installation of a ground-source heat-pump system is a complicated endeavor. Be willing to pay for expert advice and project management so that you will end up with a well-designed and -installed system that will, like the Merrimack County Nursing Home project, deliver on its design promises when drawing energy from the cold ground* beneath our feet.

Until next time, remember to turn off the lights when you leave the room.

Mike Mooiman
Franklin Pierce University
mooimanm@franklinpierce.edu
5/27/13

(*Cold Ground – This is a tune by a rather obscure group by the name of Rusty Truck which is fronted by Mark Seliger. Mark is better known for his famous photographs of celebrities and musicians including Bob Dylan, the Rolling Stones, Mark Cobain and others. His work has appeared on over 100 Rolling Stone covers. Even though he has been on the other side of the camera lens for most of his career, he clearly has made some friends in the process. On his first album, Broken Promises, he had Sheryl Crow, Jakob Dylan, Willie Nelson and Lenny Kravitz as guests, among others. Enjoy Cold Ground produced by T-Bone Burnett and featuring Sheryl Crow on backup vocals.)

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A Hundred and Ten in the Shade* – Long-Term Heating and Cooling Season Trends in New Hampshire

I am in the Southern Hemisphere this week, and as I headed from a cool New England spring to a warm South African autumn, my thoughts turned to long-term temperature trends in New Hampshire and their energy implications.

In January this year, I read an interesting press release from University of New Hampshire in which Mary Stampone, the NH state climatologist, pointed out that 2012 was the hottest year on record in NH and much of New England. The chart below was included in the press release, and the data showed the variation above and below the long-term average calculated from the 1895 to 2012 data. The largest positive variation was for 2012 in which the average annual temperature was ~10% (4^oF) above the average of 43.4^oF. The data also shows that we are getting more and more of these large positive variations over the past 20 years.

 

Having spent a considerable amount of time shoveling my driveway this past winter and seeing my air conditioning bills increase the summer before, I was interested in trying to understand if these higher annual temperatures meant hotter summers, warmer winters or both. The tack I took was to look at cumulative temperature values, known as heating and cooling degree days, that are of great use to designers of heating and cooling systems for buildings. However, instead of looking at a single value for the year, I split the year into two periods – a winter or heating period from October to March which is normally when our home heating systems kick in and a cooling or summer period from April to September which is normally when we turn on our air conditioners.

 

But, before I present that data, allow me to explain the concept of heating degree days. To calculate the heating degree value, we take a reference temperature - normally 65^oF (when we don't really need heating or cooling) - and then we subtract the average daily temperature from the reference temperature. For example, if the average daily temperature is 30^oF then the heating degree value for that day is 65 - 30 = 35. There is a direct correlation between heating degree value and the energy we use to warm our homes. The lower the outside temperature, the greater the heating degree value and therefore the more energy we need to bring our home up to that reference temperature of 65^oF.

 

Typically building engineers that size heating systems use cumulative heating degree days, amongst other factors, to size a heating system. To get a sense of the accumulated heating degree day numbers, consider the following example. If you have a month of 30^oF days in the winter, then the total heating degree day (HDD) value for that month is 30 x (65 – 30) = 1050. If similar temperatures are experienced over a six-month period then the total number of HDDs is 6 x 1050 = 6300. This is a rather rough calculation for the six-month heating season as some days are a lot colder than the 30^oF temperature I used, but, of course, some are warmer. Nevertheless, the HDD value of 6300 gives us an order of magnitude understanding of data in the figure below. This chart show the six-month total of HDDs for the October to March period for each year since 1895. The six-month HDD totals are plotted in blue. Even though there is considerable variation year to year, the long-term HDD average is 6240 which is close the approximate value we just determined. To give you a sense of how this numbers varies across the country, the equivalent number for Florida is 650 because the winter months down there are so much warmer. Clearly those folks down south are not spending a lot of time worrying about home heating, and they could probably get away with a nice thick sweater and a few extra blankets in winter.

 

I have also placed two trend lines over the data to draw out the long-term story. The first trend line, shown in red, is the simple linear average and it clearly demonstrates how the HDD value for the heating months has declined from 6500 to 6000. I have also overlaid a 20-year moving average which snakes above and below the linear trend line, but it too demonstrates the long-term decrease in HDD values. This long-term decrease indicates that our winters are getting warmer and that, as a result, we should be using less energy to heat our homes.

 

Having looked at our warming winters, my immediate next thought was; what about the summers? For the summer analysis, we use the concept of cooling degree days (CDDs). To determine the cooling degree days, we calculate the difference between the average daily temperature and the reference temperature, 65^oF. So if the average daily temperature is 70^oF then the cooling degrees for that day are 70 – 65 = 5. A month of similar days would give 30 x 5 = 150 CDDs for the month, and six months of similar days would lead to 6 x 150 = 900 cumulative CDDs. These numbers are a lot lower than the heating degree totals because they are mean daily temperatures and thus averages of cooler nights and warmer days. The actual numbers for NH are very much lower and the long-term average (1895 to 2012) for the six-month April to September period is 306 CDDs. For comparison purposes I determined that the equivalent number for Florida is 2500 CDDs. So, compared to the Florida folks, we need a lot less air conditioning but that appears to be changing as I will show. In the chart below I have plotted the long-term data for the six month accumulation of CDDs in blue as well as some trend lines. As you can see from the red linear trend line, the CDD average has increased over the 117 years of this data set. As with the with HDD chart, I have also included, in black, the 20-year moving average and again the upward trend is apparent. We have moved from a 20-year CDD average of 300 to a recent value of 350. Compared to Florida, this is no big deal, but for us that 17% rise represents a big fat increase in our air conditioning energy usage.

  

So if we put this data together it is clear we are, on a long-term trend basis, looking at warmer winters and hotter summers. This presents some challenges and perhaps opportunities if you are in the air conditioning business. A particular challenge for NH is that warmer winters mean less snow, a shorter skiing season and tough times for the ski industry. Some of this has been overcome with mechanical snowmaking, which is good for vendors of snowmaking equipment, but it does increase the industry's costs as snowmaking is a highly energy and water intensive process. Warmer winters do result in lower heating bills in the winter and reduced oil consumption which many home and business owners find helpful. This warming trend has likely contributed to the observed reduction of energy consumption in NH homes and business that I referred to in my Where have all the BTU's gone? post.

 

Reduced oil consumption is always welcome, but it has been replaced, in part, with increased air conditioning usage. One benefit of less heating and more cooling is that we are substituting oil for heating with electricity for cooling. Even though electricity is largely driven by natural gas and coal combustion, an increase in electricity demand does, in the long term, provide more opportunities for nuclear and renewable electricity production. I admit I am stretching here trying to find the tiny bit of silver lining on the big black cloud of global warming. The real concern is that as our winters warm and our summers heat up, we will have to deal with all the other consequences of climate change, including rising sea levels, more severe weather excursions, the spread of diseases and many others.

 

What can you and I do in the meantime? Well, the simplest and least expensive thing we can do right away is to better insulate our buildings as this will immediately reduce energy consumption in our homes and businesses. This would reduce energy consumption in both the heating and cooling seasons. If we all did this, it might help to slow down the long-term trend of warmer winters and hotter summers and in the process it might help to avoid some of those hot, humid days when it could get to be a hundred and ten in the shade.*

 

Until next time, remember to turn off the lights when you leave the room.

 

Mike Mooiman
Franklin Pierce University
mooimanm@franklinpierce.edu
5/5/13

(*A Hundred and Ten in the  Shade is a tune by John Fogerty from his Blue Moon Swamp album which received a well deserved Grammy for Best Rock and Roll Album in 1997. It is a slow tune that perfectly catches the listlessness and despair of hot, humid days when you have to go out and work in the fields. Just listening to it makes me break into a sweat)

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