Growth of wind is contributing to key challenges in SPP market: MMU report

Increased wind capacity and high natural gas prices in Southwest Power Pool are contributing to the ongoing growth of negative prices, curtailment, congestion, and make-whole payments, the grid operator's market monitoring unit told SPP's board of directors April 26.

While these trends are not new, they deepened in 2021 and they will continue until there are changes in the market, Keith Collins, vice president of market monitoring at SPP, told the board.

"We should start taking action to address these," Collins said.

SPP's nameplate wind capacity reached 30,500 GW in 2021, up from 27,300 in 2020 and 22,500 in 2019, the MMU said in its draft State of the Market Report 2021. "This large increase in installed wind capacity has increased competition for access to transmission lines, which in turn has led to a sharp increase in congestion, negative prices and curtailments," the draft report said.

Wind curtailments averaged 675 GWh in 2021, up from 130 GWh in 2019, the draft report said. Most were automated curtailments when market software reduces dispatch for wind resources to mitigate transmission constraints, the draft report said.

Ongoing curtailments

Increased curtailments have continued into 2022, according to data from S&P Global Commodity Insights. April month-to-date wind on-peak curtailments in SPP saw a 213% increase to average 16,600 MW compared to last year at the same time. March curtailments also saw notable jumps, up 46% year on year to average over 10,700 MW.

Renewable wind penetration also has seen rises on the year, as wind peak penetration for the first quarter this year trended 11.7 percentage points higher than quarter one of 2021, S&P Global data showed.

Increased wind penetration has pushed down average wind capture prices at SPP North Hub year to date to 19.75/MWh, compared to the average year to date baseload price of $24.30/MWh.

S&P Global Renewable Capture Price Indexes track the value that renewable energy generators capture for the electricity they produce throughout the day, based on hourly generation and ISO's pricing data.

Negative prices

The draft MMU report found that negative priced intervals in 2021 increased year over year by 70% in the day-ahead market and by 37% in the real-time market. In the real-time market, about 15% of all intervals had negative prices, up from 11% in 2020, the draft report said. And in the day-ahead market, 8% of intervals had negative prices, up from 4.5% in 2020, the draft report said.

Congestion costs were nearly $1.2 billion in 2021, up from $450 million in 2020, the draft report said. "This marked increase can primarily be attributed to the proximity of existing generation to load, the proximity of newly constructed generation to load, the outage of key transmission facilities, the volatility in fuel prices, and the 2021 winter weather event," the draft report said.

SPP also saw an increase in 2021 make-whole payments, which are out-of-market payments to resources when market prices are not sufficient, the MMU said.

Without February, day-ahead make-whole payments totaled $75 million, up 41% from 2020, and real-time make whole payments totaled $116 million, up 128% from 2020, the draft report said. Including February, the day-ahead make-whole payments for 2021 totaled $978 million, and real-time make-whole payments totaled $354 million, the draft report said.

Gas-fired resources represent about 96% of all make-whole payments in 2021, the draft report said. Even with February 2021 removed from the totals, make-whole payments for gas resources increased by 63% in the day-ahead market and by 145% in reliability unit commitment, the draft report said. "Much of this increase can be attributed to high gas prices throughout 2021, the draft report said.

Recommendations

The MMU made one new recommendation to expand the multi-configuration combined cycle model to include additional resource types, according to the presentation to the board. Today, coal-fired plants could benefit from this model, and in the future, storage resources could use the approach, Collins told the board.

The MMU also emphasized prior recommendations, including updating market and outage requirements to improve funding for transmission congestion rights, enhancing market-to-market efficiencies through collaboration with Midcontinent Independent System Operator, and addressing inefficiencies when forecasted resources under-schedule in the day-ahead market.