As natural gas prices fluctuate based on the global and national market demands, Metro Nashville District Energy System (DES) has the ability to buffer the impact of these fluctuations on the DES customers through the purchase of natural gas futures for a guaranteed price.
This price hedging can, and often does, allow the DES to purchase fuel ahead of the current month at rates lower than the actual spot market, especially in periods of high demand. DES also purchases interruptible natural gas service which is made possible by utilizing propane as a back-up fuel during supply interruptions or curtailment. Over the last two fiscal years (FY22 and FY23) as the unit price of natural gas has skyrocketed, DES’s hedging and fuel purchasing policies have saved the customers approximately $4,800,000 in natural gas fuel costs compared to each customer purchasing non-interruptible natural gas service on their own.
Over these past two years, an individual building purchasing natural gas on their own could have found themselves paying around $12 per million BTU versus the $5 to $6 per million BTU price at which DES was able to buy based on price hedging and interruptible natural gas service. In turn, these low rates have saved DES customers approximately $500,000 over these two years had the hedging policy not been in place.
DES’s ability to utilize propane as a back-up fuel source allows the system to purchase natural gas through an interruptible service agreement. The ability to switch to propane “on the fly” as necessary based on the fuel suppliers need to restrict or shutdown natural gas service during periods of high demand periods (such as cold winter days) saves customers money. DES also pre-purchases propane which is stored at the propane supplier’s facility and is made available on short notice for delivery should a curtailment occur. Any propane not used during the heating season is sold back to the supplier at the then current market rates. This propane storage policy results in a minimal cost to the customers but insures an ample supply of fuel at a guaranteed price. For most commercial buildings, interruptible gas supply, hedging and propane back-up systems are often not practical or cost-effective.
What is the alternative for a commercial building? Without steam from DES, a building can generate their own hot water with natural gas but at firm, non-interruptible rates. If heating with hot water is not an option, the building will typically use electricity to heat their building either through the use of heat pumps or with electric resistance heating. Although heat pumps can be more efficient than utilizing natural gas, the price for heating with electricity is much higher. For electricity costing an average rate of $0.13 to $0.15 per kWhr, the unit price is around $38 – $40 per million BTU compared to $6 per million BTU for steam produced with natural gas purchased through the DES gas procurement policies!
Comprehensive cost comparison analysis for potential new system customers is a free service provided by DES through the project administrator Thermal Engineering Group, Inc. Two recent analyses have demonstrated more than a quarter-million-dollar annual cost savings on operating expenses, with additional up-front capital cost savings for both projects.
For more information contact Thermal Engineering Group at 615-264-2611.