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Archive for April, 2012

This past Monday, April 23, my daughter, Melanie Neilan, was one of six Chicago area high school students and five professional actors and actresses from the Steppenwolf Theater Company who performed the dialogue Speak Up, Speak Out for Freedom and Rights in the Opening Ceremony of the 2012 Nobel Peace Laureates Summit held at McCormick Place. Mikhail Gorbachev, Lech Walesa and Jimmy Carter were among the winners of the Nobel Peace Prize in attendance, and actor Sean Penn was recognized for his humanitarian work in Haiti.  You can view the opening ceremonies here; the performance begins at approximately minute 19:45 in the video.

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This week, prompt month natural gas on the NYMEX dropped below $2 for the first time in more than ten years, and many think it’s not going to find a floor any time soon. Thursday’s cash Henry Hub price dropped to $1.85/mmBtu.

Let’s put this in perspective. As recently as 2008, the perception in the natural gas market was that we were entering an era of tight supply and high demand. The Henry Hub cash price high in May 2008 was  $11.27. And futures reached a high of $15.38 in December 2005, just a few months after Hurricane Katrina tore a path of destruction through the Gulf of Mexico. Some big money players started to make plans to build liquefied natural gas terminals on the west coast so that the U.S. could import cheaper gas from foreign sources. Electric utilities started to look again at coal generation stations because they assumed that natural gas would be too costly.

How quickly things change.

A combination of factors are at work. The economic downturn has lowered demand for natural gas in many sectors. The northern part of the country experienced one of the mildest winters in years, and in fact last month was the warmest March on record. But most importantly, production in U.S. natural gas fields, including fracking operations in the Marcellus Shale in Pennsylvania/upstate New York and west and south into Ohio and West Virginia, has skyrocketed.  Inventories have been rising so fast that there’s a concern that storage capacity could be exhausted by the end of the year. As of this past Thursday (April 12), gas inventories were nearly 59% above the five-year average level .

Instead of expanding their coal-burning stations, utilities with power stations that can switch fuels turned to much cheaper natural gas. In January 2012, 38% of electric generation came from coal, compared to 47% a year earlier, and the price of coal dropped precipitously over the last year. But nearly all switchable capacity has already switched, so it’s not likely that demand for natural gas will increase among electric utilities. Still, natural gas producers are not slowing down.

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On Monday, April 2, 2012, I made a presentation to the Illinois Power Agency (IPA) on the role of aggregators under amendments to the Illinois Power Agency Act that were enacted last fall (P.A. 97-0616 and P.A. 97-0646).

Under the existing Illinois Renewable Portfolio Standard (RPS), subject to certain cost-effectiveness limitations, electric utilities must procure renewable energy equivalent to a prescribed percentage of their electricity supply requirements, increasing from 8% by June 1, 2013 to 25% in 2025. The amendatory acts create a carve-out for distributed renewable energy generation, increasing from 0.5% by June 1, 2013 to 1.0% by June 1, 2015 and thereafter. Eligible renewable generation devices may be powered by wind, solar thermal, solar photovoltaic panels and crops and organic waste biomass, as well as a few other eligible renewable energy sources. Distributed generation is limited to a maximum nameplate capacity of 2 megawatts. Of these distributed generation resources to be acquired, to the extent available one half are to be sourced from generation devices with a nameplate capacity under 25 kilowatts. The new law directs the IPA to solicit third-party aggregators to consolidate distributed generation resources into blocks of at least 1 megawatt nameplate capacity and administer contracts with distributed generation device owners.

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