Unlocking Savings: Navigating the Uncertain Waters of Energy Pricing

Oct 11, 2023

Unlocking Savings: Navigating the Uncertain Waters of Energy Pricing

In the ever-evolving world of energy, where prices can fluctuate like a rollercoaster, making the right decisions can be daunting. It’s not just about the numbers; it’s about understanding the complex landscape of energy markets and the factors that drive them. Nowhere is this complexity more evident than in programs like ISO New England’s Mystic Cost of Service.

Why Price Isn’t Everything

When it comes to energy purchases, the first thing that often comes to mind is price. Yes, price matters, but it’s not the only piece of the puzzle. Imagine you’re buying a car. Would you base your decision solely on the sticker price? Probably not. You’d consider fuel efficiency, maintenance costs, resale value, gas economy, and what fits your lifestyle best. Similarly, in the energy world, understanding the full picture is crucial.

The Enigma of Mystic Cost of Service

Take, for instance, ISO New England’s Mystic Cost of Service program. In 2018, it was introduced as a means to keep the Mystic Liquified Natural Gas plant operational, ensuring grid reliability as New England transitions to cleaner energy sources. At first, the costs seemed negligible, but then came the unforeseen twists.

The Mystic plant’s operational costs are intricately tied to the global LNG market, a market known for its volatility. Factors like geopolitical tensions and natural disasters thousands of miles away can send prices soaring. In 2022, the EU faced a natural gas shortage, driving LNG prices to unprecedented levels. The Russia-Ukraine conflict further exacerbated the situation, and prices skyrocketed.

While all this was happening, the Mystic plant had to purchase LNG, significantly increasing its operating costs. To offset these costs, New England needed a cold winter with high electricity and gas prices so that the Mystic plant wouldn’t operate at a loss. This introduced a level of uncertainty that rippled through the energy market.

ISO New England – Mystic Cost of Services Program Overview

Expertise Matters

This is where expertise becomes indispensable. Environ Energy, with its deep understanding of energy markets and regulatory intricacies, stepped in. We knew that with costs in flux, ensuring apples-to-apples comparisons among suppliers was paramount. We employed our proprietary bid evaluator to quantify the risk of including or passing through Mystic Cost of Service costs.

We also scrutinized supplier contracts meticulously, ensuring that contract language aligned with the product we had selected. This attention to detail ensured that our clients wouldn’t face any surprises down the line. 

Adapting to the Ever-Evolving Energy Market: The Mystic Cost of Service

In the fast-paced world of energy procurement, staying ahead of the curve is paramount. The recent experience with the Mystic Cost of Service for one of our clients vividly illustrates the significance of adaptability and foresight within the evolving energy landscape.

We navigated two distinct strategies for the same client at different locations, and both approaches translated into substantial savings. The reason behind this strategic shift? Timing.

In the middle of 2022, a cloud of uncertainty enveloped the actual cost of Mystic. Initial projections were notably low, hovering around $0.20 per megawatt-hour (MWh). However, our commitment to keeping a vigilant eye on the dynamic energy market, especially the unfolding crisis in Europe and its ripple effects on the Global LNG Market, revealed an impending shift. We detected a significant upside risk to the cost, and this insight prompted swift action.

In July 2022, we collaborated closely with Third Party Suppliers to craft advantageous contract terms, securing the Mystic Cost of Service at approximately $0.20/MWh. This decision proved to be a game-changer. Over the next two years, spanning from December 2023 to December 2025, our client, consuming 60,000 MWh, enjoyed savings amounting to nearly $900,000.

As the year progressed, and projected costs for Mystic soared, the landscape altered significantly. The once minor projection had matured into a substantial reality. In response to this shift, we modified our approach. For the same client mentioned earlier, who was in the process of contracting two additional locations, totaling 15,000 MWh in November 2022, we recommended passing the cost through and paying its actual value. This strategic maneuver proved invaluable, allowing them to circumvent approximately $80,000 in charges during the subsequent winter season.

This real life example emphasizes the crucial role of adaptability and the ability to foresee changes in the ever-evolving energy market. It underscores the significance of proactively identifying opportunities, reacting to shifting market dynamics, and ultimately ensuring optimal outcomes for our clients. In an environment where change is constant, these two distinct strategies reveal our unwavering commitment to keeping a finger on the pulse and delivering the most advantageous solutions for our clients.

Read about the Everett LNG terminal and the tie-in with Mystic here.

Future Outlook: Navigating the Uncertainties Ahead

While we’ve explored the intricate dance of energy markets, Mystic Cost of Service, and LNG prices up to this point, it’s crucial to peer into the future to understand the potential developments and challenges that may shape your energy decisions in the years to come.

  1. Energy Transition Acceleration: One unmistakable trend on the horizon is the accelerated transition to cleaner energy sources. Governments worldwide are committing to ambitious renewable energy targets, which will inevitably impact energy markets. As fossil fuels are gradually phased out, the demand for natural gas, including LNG, may undergo significant shifts. Businesses need to stay adaptable to navigate these evolving dynamics.
  2. Regulatory Changes: Energy markets are heavily influenced by regulations, and we can expect continuous adjustments in response to environmental concerns and grid reliability. Keep an eye on emerging policies that may impact your energy costs and obligations, as they will play a pivotal role in your long-term planning.
  3. LNG Market Volatility: The recent turbulence in the global LNG market serves as a stark reminder of its sensitivity to geopolitical events. Any disruptions in major LNG supply routes or changes in the geopolitical landscape can send shockwaves through the market, affecting both supply and prices. This uncertainty reinforces the importance of vigilant risk management.
  4. Grid Resilience Focus: Grid resilience is a hot topic, especially in regions susceptible to extreme weather events. Utilities and regulators are increasingly prioritizing infrastructure upgrades and weatherization to prevent grid failures. As a result, businesses may face new charges or requirements related to grid reliability in the future.
  5. Supply Chain Impacts: The energy sector, like many others, is not immune to supply chain disruptions. Factors like global shipping challenges, material shortages, or labor issues can affect the availability and pricing of energy-related equipment and services. Businesses should consider these potential impacts in their strategic planning.
  6. Technology Advancements: Advancements in energy technology, such as energy storage, microgrids, and demand response systems, continue to reshape the energy landscape. These innovations offer opportunities for cost savings and improved reliability but require careful integration into your energy strategy.
  7. Geopolitical Influences: Geopolitical events, including conflicts or sanctions involving major energy-producing nations, can cause ripple effects throughout the energy market. Such events can disrupt supply chains, influence policy decisions, and impact energy prices.

In this ever-evolving energy landscape, partnering with experts who can anticipate, interpret, and guide you through these uncertainties becomes paramount. At Environ Energy, we pride ourselves on not just reacting to change but proactively preparing our clients for whatever may lie ahead. Our regulatory team continually monitors the evolving energy landscape, ensuring that your energy strategy remains resilient and adaptable.

As you plan for your energy future, remember that preparation and a deep understanding of market dynamics are your greatest assets. By staying informed and working alongside experienced advisors, you can position your business to thrive amidst the challenges and opportunities that tomorrow’s energy markets will undoubtedly bring.

The Multi-Million Dollar Safety Net: Unpacking Everett’s Energy Dilemma

The Environ Advantage

Our approach yielded substantial savings for our clients. By understanding the nuances of the program and accurately projecting budgets, we positioned our clients to make informed decisions. We didn’t stop there; our regulatory team continues to monitor these costs, ensuring our clients are always up-to-date.

The energy market is a complex, ever-changing landscape. Understanding the nuances of programs like Mystic Cost of Service and how they impact your bottom line requires more than just number crunching. It demands expertise, attention to detail, and a finger on the pulse of regulatory changes.

At Environ Energy, we’re more than just energy consultants; we’re your partners in navigating this intricate world. As market dynamics shift, our commitment to your savings and success remains unwavering. Our teams of energy experts are ready to listen, analyze, and collaborate with you to craft an energy strategy that aligns with your goals, manages risks effectively, and maximizes cost savings. Your energy future starts with a conversation. Reach out to us today, and let’s embark on this journey together.

Remember, in a world of energy possibilities, Environ Energy is your steadfast guide to a brighter, more sustainable future. We look forward to hearing from you.