Mark Twain is often credited with the familiar quote, “Everybody talks about the weather, but nobody does anything about it.” He might be right, but it doesn’t mean that’s the right way to go. In fact, many companies that didn’t “do anything about it” before or during last year’s much-publicized “polar vortex” learned a very harsh lesson.
In a blog post from this past February, I wrote about the importance of planning as part of a proactive energy management strategy. As we discussed, the right strategy typically pays for itself, and then some, especially during bad weather. Given the forecast for another worse-than-average winter for much of the U.S. and Mexico, energy managers would be wise to remember another axiom this time around: “Fool me once, shame on you. Fool me twice, shame on me.”
My colleague, Andrea Willman, recently posted Schneider Electric’s 2014/2015 Winter Weather Outlook. Andrea is part of Schneider Electric Weather, a division that has produced ForecastWatch.com’s top-rated temperature and precipitation forecasts for the past seven consecutive years. Additionally, more than 70% of major investor-owned utilities and large co-ops in the U.S. rely on our weather intelligence, which means I work with some very bright people when it comes to weather data analysis, occasionally in my own backyard. The graph below provides a visual summary of the division’s weather outlook for the U.S., which was issued in early October:
Maybe you look at the forecast and think, “At least it won’t be as bad as last year.” You may be right. After all, Winter 2014 was the coldest in more than three decades. But, note the negative values throughout the blue section in the map below:
Another unusually frigid winter with prolonged below-average temperatures would likely have far-reaching implications for both natural gas and electric power prices. In this scenario, many utilities would be hard-pressed to not only meet increased demand from residences, commercial and industrial sites, but generators’ needs, as well, for those that use natural gas to produce electricity. As a result, another round of natural gas curtailments and interruptions would certainly be possible, if not likely. And, of course, low temperatures and nasty weather could also cause power-generating units to malfunction and go offline, which would also increase electricity demand. Any or all of these scenarios would push prices upward for both commodities.
The severity of the weather remains to be seen, but the data is solid and the warning signs are there. It’s not too late to implement an approach that better positions your organization this winter. Let’s begin with these four steps:
- Protect yourself from significant price spikes.
If you have sites in areas prone to weather-related gas disruptions, review your communication protocol with your site personnel. Make sure they pay attention to any notices received from suppliers or utilities and follow the instructions.
- Consider your options.
Understand your back-up fuel options before a disruption occurs and the price point at which your back-up fuel option becomes more economical than natural gas. Leverage any on-site generation in the same way and integrate your on-site assets into your overall purchasing strategy.
- Test your back-up fuel system and on-site distributed generation.
Perform periodic tests to confirm your back-up fuel system is fully functional and make sure you have adequate fuel on hand. Otherwise, you may be forced to buy back-up fuel at high market prices during a disruption. For your electric power needs, consider taking price coverage measures before winter and curtailing your usage if you are able in the event prices spike.
- Understand your opportunities.
If you have the ability to curtail usage or shut your facility down for a period of time, you may be able to generate revenue by selling gas or electricity back into the market. (This approach requires a number of operational considerations, as well as close coordination with your finance group to ensure that this practice is allowed.) Similarly, if any of your sites participate in demand response programs for electric power and an “event” is called, you can generate revenue by reducing your consumption during the event.
Depending on your organization’s energy needs and the location of your sites, there may be other preventative and preparative steps you should undertake. There’s no time to lose.
Given the unseasonably cold temperatures and record-breaking precipitation across portions of the U.S. already this fall, talking about the weather is already in full swing. Starting with evaluating the options and opportunities, now is the time for energy professionals to do something about it!
Here are a few resources to get you started:
And, of course, we’re glad to provide any guidance you need in formulating a customized natural gas/electricity strategy. Just leave a comment below or click here.
Read any of my previous posts here.