High summer power prices, reliability concerns anticipated in Western half of US

The Midcontinent System Operator and Western US are at risk of energy emergencies this summer, the Electric Reliability Council of Texas said it has sufficient reserve margins to meet demand, but power price spikes are possible, while the Eastern US power market operators are better positioned from a reliability perspective.

There are sharp forward power price increases across the board in the US compared with where the markets settled last summer, Morris Greenberg, senior manager of North American Power Analytics at S&P Global Commodity Insights, said during a June 1 summer power outlook webinar.

PJM Interconnection West Hub power prices for July and August have recently traded in the $150/MWh range, compared with just under $50/MWh last year, Morris said.

ERCOT has been trading above $200/MWh and in the west power prices have been in the $150/MWh to over $200/MWh range, which is significantly higher than year-ago levels, according to Morris' presentation.

The higher power prices have largely been driven by generation fuel price increases with "strong natural gas price increases that we've seen year over year and very strong prices for eastern coal as well," he said, adding that California carbon allowance trading system prices and Regional Greenhouse Gas Initiative prices have also increased.

"The interesting thing is that despite Henry Hub gas prices being in the $8/MMBtu to $9/MMBtu range, we're not really seeing any pickup in coal generation ... and upsides in load associated with hotter than normal weather are likely to accrue mainly to gas," Morris said.

The highest temperatures are expected in the Western region and temperatures are expected to be higher than normal from coast to coast from July to August, according to the National Oceanic and Atmospheric Administration.

Reliability outlooks

Regarding reliability, the North American Electric Reliability Corporation's 2022 Summer Reliability Assessment identified three regions of special concern: MISO, ERCOT and the entire Western US region.

MISO projected in its summer readiness workshop that it will not have enough firm resources to cover typical peak summer loads, a finding that aligns with the shortfall in MISO's recent capacity auction that has pushed up power forward contracts in the region.

MISO key findings:

• Load is projected to peak at 124 GW in July, and projected available capacity that month is 119 GW
• MISO will need to use load-modifying resources, non-firm resources, and emergency power purchases
• The summer outlook aligns with the capacity auction shortfall for the North, Central MISO regions
• Indiana Hub July-August on-peak summer strip inched near 25 cents during June 2 trading on the Intercontinental Exchange to $147/MWh, a near 190% increase from last year at the same time
• This May, the summer strip averaged about $109/MWh, a 181% jump from last May's average of about $38.75/MWh

The California Independent System Operator forecasts summer peak demand could reach as much as 51.469 GW, which would lead to an Energy Emergency Alert 3 where load is interrupted, due to a years-long drought, hydropower generation shortages and ongoing extreme temperatures, according to its 2022 Summer Loads and Resources Assessments.

CAISO key findings:

• Hydropower supply down for the third consecutive year
• Supply chain issues preventing storage development
• Methodology revised to include recent climate change
• Available system capacity ranges from 47.892 GW to 52.654 GW
• Peak demand forecasts range from 45.866 GW to 51.469 GW
• Wildfire events could limit key transfer paths or resources
• Combination of extreme heat, fire risk and smoke could impact solar production
• Supply chain issues mean significant storage additions will not happen this summer
• CAISO projected net additions and retirements of 7.556 GW
• Palo Verde on-peak June is in the upper $120s/MWh, 102.5% above the 2021 package a year ago
• SP15 on-peak June is in the upper $80s/MWh, 87% higher than the 2021 package a year ago
• NP15 on-peak July is in the upper $110s/MWh, 32% above the 2021 package a year ago

Increased natural gas prices and hotter weather will likely boost wholesale power prices in ERCOT in summer 2022, possibly exacerbated by thermal generation foregoing maintenance in the spring.

Additionally, continued congestion may produce price spikes in population centers such as Houston, due to the lack of transmission capacity from West Texas renewable resources.

ERCOT key findings:

• The Seasonal Assessment of Resource Adequacy calculated the planning reserve margin for summer 2022 at 22.8%
• Load is forecast to peak at 77.3 GW
• Solar power capacity at the end of April approached 11.5 GW, more than six times the 1.9 GW that existed in 2018
• Battery capacity topped 1.7 GW in April, compared with less than 100 MW in 2018
• June, July, and August on-peak power recently averaged more than $180/MWh, more than triple the corresponding $50.64/MWh average day-ahead on-peak price in summer 2021

Southwest Power Pool's expected resources meet operating reserve requirements under normal peak-demand scenarios, but above-normal summer peak load and outage conditions could result in the need to employ operating mitigations like demand response, transfers, and Emergency Energy Alerts, according to NERC.

SPP key findings:

• Demand is expected to peak at 51.1 GW and there will be 55.5 GW of resources available to serve load
• SPP could supply load in June and July with just conventional resources but will rely on wind in August
• Under a high demand scenario, SPP will need to rely on wind in July and September
• SPP is not expecting it will need to use emergency procedures this summer
• SPP has told coal-fired generators to contact SPP if their coal supplies drop below certain levels
• SPP forward power prices saw higher yearly trends on ICE, as the South Hub July-August peak summer strip averaged about $109/MWh this May, a 181% jump from last May's average of about $38.75/MWh, according to S&P Global

The Eastern US ISOs -- PJM, the New York Independent System Operator and ISO New England -- all expect to have sufficient resources available to meet peak power demand this summer, according to their summer outlooks.

Eastern ISO key findings:

• PJM forecasts summer peak power demand at about 149 GW
• PJM has about 185 GW of installed generating capacity available
• NYISO has a total of 41.1 GW of power resources available this summer
• NYISO forecasts peak summer demand of 31.8 GW
• ISO-NE expects over 31 GW of power system capacity available this summer
• ISO-NE forecasts peak demand to reach 24.7 GW under typical weather conditions and up to 26.4 GW under extreme weather