Energy Management: Knowing the Relationship between Natural Gas and Coal
Who doesn’t remember their mom or dad running over to the thermostat on a cold winter morning, knocking back the heat and ordering everyone to bundle up? Or the scolding for leaving the fridge door open more than for a few seconds while looking for PB&J fixins’?
Your folks knew about energy back then, even though neither had the sophisticated tools available today to monitor and predict costs. They had PECI, or Parental Electricity Consumption Instinct.
In a recent conversation with Gerry Henigsman at the Apartment Association of Greater Dallas (AAGD), he compared property managers to surrogate mothers. They are the on-site, go-to folks for residents who need everything from a light switch fixed to understanding electronic payment processes, or maybe even a sounding board for the price of a gallon of unleaded.
However, just imagine that apartment mom trying to keep tabs on every resident’s energy usage. Managing energy today is simply more difficult, no matter how good the PECI.
According to a couple of energy think tanks, the apartment industry is wasting $3.4 billion a year nationwide in energy consumption. The estimate is based on $2 billion in potential electricity savings, along with $1.34 billion in possible natural-gas savings from using more efficient lighting, appliances, and air- and water-heating systems.
Energy management tools can help property owners protect the bottom line and identify the need for efficiencies, but first, a good understanding of the energy game is needed.
Managing the Volatile Commodity
With Environment Protection Agency (EPA) pressures, natural disasters, and a struggling economy, energy has become a volatile commodity in recent years. Managing energy today simply is more difficult than adhering to the five-second rule with the Fridgedaire.
Gas and electricity are big players, and it takes a good eye to know when to lock in pricing, says Brad Gawboy of Ecova, a complete energy and sustainability management company based in Spokane, Wash. While speaking on energy recently at RealWorld 2012, RealPage’s annual user conference, in Las Vegas, he said property owners need to know the correlation between the gas and electricity markets.
With current regulations that require coal-fired electricity generators to become more environmentally friendly, and a seemingly endless supply of natural gas resulting from new horizontal drilling technologies, the energy market is changing.
Dirtier coal-powered electricity plants are juggling whether to switch to cleaner burning natural gas to fire plants or go dark. Coal-fired power plants produce substantially more sulfur oxide, nitrogen oxide, and carbon dioxide than natural gas powered plants. (Smog is caused by nitrogen oxide.)
Since 2008, gas prices have dropped dramatically while the number of online coal-fired plants has begun to shrink. Converting from coal to gas is costly, and many plants are simply shutting down.
The U.S. Energy Information Administration (EIA) recently reported that the amount of coal-fired gigawatt capacity (a gigawatt will power about 700,000 homes annually) planned for retirement in 2012 will likely be the largest one-year amount in the nation’s history. Citing low natural gas pricing and tougher government policies, EIA said that this year nine gigawatts of capacity likely will be retired.
Over the next four years, that total should increase to 27 gigawatts, more than four times greater than the retirements during the preceding five-year period.
This will ultimately put pressure on residential energy prices, which forecasters estimate are going to rise 10 percent by 2015.
Natural gas prices are already starting to tick upward, though they are far from the enormous highs of $13 per million British thermal units (MMBtu) resulting from the “Great Recession” and fallout from hurricanes Katrina and Rita.
Since April, natural gas futures pricing began an upward trend and is pushing $3/MMBtu, and Goldman Sachs analysts expect pricing will continue to escalate to as high as $6/MMBtu by April 2015. Goldman expects that coal plant retirements, coupled with increased industrial demand, will deplete gas stockpiles and boost prices.
Gas is a Good Buy for Now
“You can still look back and see that it’s still a darned good price if you were to lock something in today,” Gawboy said. “There are upward pressure points causing overall energy prices to continue upward. But for the fuel itself, we’re actually seeing some of the best pricing in 10 years.”
But that could change depending what’s in store down the road for either gas or coal, which ultimately impacts the direction on energy pricing.
That’s even greater fodder for why apartment owners should keep an eye on one of their most significant operating expenses.
And the fridge.