Summer peakloads could put stress on some US power markets as heat pushes up demand

Memorial Day Weekend is upon us, and with it the unofficial start of summer in the US.

Power markets have been prepping for the hot weather over past several weeks, with stakeholders studying the summer outlooks of grid operators and reliability coordinators.

Summers -- and winters -- are always a busy time for power markets as demand typically increases, while prices can soar.

For most of the US, summer peakloads are expected to be below last year's forecasts, but above 2017 peaks.

It could get interesting in a couple of regions this summer as air conditioning use pushes up demand.

In Texas, a slew of recent generation retirements has dragged down the generation reserve margin to below target level. In turn, wholesale power markets have seen ERCOT summer monthly packages jump to levels more than double where they were at the start of the year, with most zones hitting near $220/MWh.

And forward markets were not alone in seeing premiums.

Heat spells have been driving up demand this month, and real-time prices have risen to above $1,000/MWh at times.

Earlier this year, a cold spell sent ERCOT real-time prices soaring to the grid operator's price cap of $9,000/MWh for the first time in history.

Will history be made this summer? Expect all eyes to be on Texas as summer heats up.

Out West, the California ISO issued its summer outlook earlier this month that said because of low hydro generation levels and generation retirements it may have to issue a Stage 2 emergency this summer, something not seen for over a decade.

Complicating the picture are issues involving natural gas storage and maintenance in Southern California.

The possibility of a stage 2 emergency and natural gas problems has attracted the attention of energy regulators, who said they were “very concerned” about reliability.

California came awfully close to its all-time peak record last summer, with demand topping out over 50 GW, something also not seen in over a decade.

In past years when hydro has been depressed because of drought, California has caught a break with demand staying down, while solar and other renewables helped.

The markets will have to wait and see what history holds in store for the Golden State in 2018.

For more about summer outlooks, please tune into our Commodities Spotlight podcast -- Wholesale power markets prep for summer heat, demand and possible emergencies -- where our North American market reporters will dive into specifics.