The executive summary and introduction to a whitepaper is from ICF International and written by Judah Rose, Shanthi Muthiah, Frank Brock, John Karp, and Trisagni Sakya
For the second time in just over three years, a major weather event (the so-called polar vortex) has generated significant profits for generators, particularly in the eastern and southern United States. Wholesale power price increases were caused by many factors, notably high and fluctuating delivered natural gas pricing, generation supply shortages, and differing market structures. Changing weather patterns will accelerate the number and size of these opportunities for investors who understand the relationships among these factors.
These weather patterns are also revealing potential reliability risks to the current grid. To the outside observer, the grid performed adequately during the polar vortex. But a more detailed look shows that grid reliability is a growing problem in many areas. Resource levels and mix, market structure and seasonal resource participation are creating inadvertent consequences that may undermine grid reliability. The shortages highlight the need for a forensic review of the regulatory structures to ensure reliable power grids and appropriate price signals and the potential need for new reliability-driven investments.
Power Pricing on January 3, 6, and 7
Daily average power prices fluctuated wildly from $40/MWh to nearly $800/MWh over this period. Prices spiked on January 6 in ERCOT and on January 7 in most other markets in the US. Natural gas prices ranged from $4 to $40/million Btus.
Natural gas prices spike on demand, pipeline constraints
Natural gas prices in New England and eastern New York reached record highs on January 7, with midpoint prices ranging from $35 to $40/million Btus and bids as high as $100/million Btus. While there are unconfirmed reports of some wellhead freeze-off in the Marcellus area and the Texas Eastern Transmission compressor station in Pennsylvania was out of service for a portion of the day, there appear to have been no major gas supply disruptions during the cold snap. In other words, the high prices at New England and eastern New York hubs were due to high demand and pipeline constraints, not an interruption of upstream gas supplies.
In many markets, the increase in delivered natural gas prices was a key contributor to the increase in power prices. The principal exception to this appears to be ERCOT, where gas prices did not increase while power prices increased dramatically. For the full report:
Filed Under: News, Policy