Pacific Northwest needs to keep generation at home to balance heat-driven demand

Mid-C wholesale power prices have remained elevated this summer, incentivizing generation to stay in the region to balance demand that has been driven up from the extensive heat blasting the area.

Spot prices started climbing in June as the heat picked up substantially, Jeff Richter, EnergyGPS principal, said Aug. 12 during a Pacific Northwest summer fundamentals webinar. Cooling-degree days across the Bonneville Power Administration footprint in June were 1,268% higher than normal, according to CustomWeather data. In July, CCDs were 66% higher than normal.

"What's happening is real," Richter said. "We have this heat dome stuck over the Northwest. ... With heat domes demand."

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Not only is the region seeing an increase in weather-driven demand from heat dome temperatures, but there is also an increase in structural demand following the pandemic as business re-open, Richter said.

Peakload averaged 7.092 GW for May-July, an increase of 5.3% compared to the same period a year ago, according to Bonneville Power Administration data. So far in August, peakload has averaged 7.565 GW, 6% higher year on year.

Above-normal temperatures continue to be forecast across the West in the three-month outlook, according to the US National Weather Service.

Hydro impact

As the summer heat picks up, there is a reliance on hydro storage to meet the demand. Hydro generation averaged 68.6% of the total fuel mix in July, down 11.3 percentage points year on year, according to BPA data. So far in August, hydro generation has averaged 68.1%, 3.5 points lower than a year ago.

"With reduced hydro you have other sources that you rely on to balance demand," Richter said, adding coal in the region has retired as is no longer available. "You're going to need your natural gas plants 100%."

The is plenty of gas supply, but not enough gas plants to balance demand locally as well as send generation to California, Richter said.

Gas-fired generation has risen 4.8 points year on year to average 23.6% of the total fuel mix so far in August, according to BPA data.

Price impacts

Sumas spot gas has averaged $3.688/MMBtu so far in August, 80% higher than the August 2020 average, according to S&P Global Platts pricing data.

Power prices are also trending higher.

Mid-C on-peak day-ahead has averaged nearly $112/MWh so far this month, 202% higher than the August 2020 average, according to Platts pricing data. The spread between Mid-C and Palo Verde in the Desert Southwest tightened in June as the Pacific Northwest got blasted with record heat, while the Desert Southwest cooled off from the monsoons, Richter said.

"Mid-C is still at a point of having to keep megawatts at home," Richter said about low hydro levels and heat-driven demand. "Those megawatts will have to be priced to stay at home."