Commodities 2022: Southeast power prices may dip late in the year with policy, supply changes

The proposed Southeast Energy Exchange Market brings uncertainty to how the region's power prices and investments perform in 2022, but forward markets indicate expectations of new capacity in the second half of the year, possibly because of solar growth and the new Vogtle Unit 3 nuclear plant's startup.

SEEM builds on existing bilateral trading by establishing a new platform matching buyers and sellers of excess electricity. A third-party analysis estimated SEEM would save 50 million consumers more than $100 million annually by 2037 while boosting renewable energy and energy storage.

Fourteen utilities, including Southern Company, two Duke energy subsidiaries and the Tennessee Valley Authority, submitted the proposal, which became automatically effective Oct. 12 due to a 2-2 deadlock at the Federal Energy Regulatory Commission. On Dec. 13, FERC denied two rehearing requests from opponents of the proposal, because they missed a Nov. 10 deadline.

Southern Company spokesman Todd Terrell said "we are working to be ready in the second half of 2022" for the SEEM initiative to go live.

Tyler Jubert, a power market analyst at S&P Global Platts Analytics, said the original proposal in February said the new market "would reduce trade friction and promote the integration of renewables."

"However, the agreement still lacks an official plan on how an automated system matching buyers and sellers would operate; therefore, it remains unclear how trade will be impacted, as well as what the integration of renewables will look like," Jubert said. "Critics of the agreement have also pointed out a number of potential flaws, such as a potential ... for SEEM participants to feel incentivized to maintain their monopoly power at the expense of the customer... and it remains unclear if any additional changes will be implemented at this point, making it difficult to say how prices or new projects will be impacted."

Eric Smith, Tulane Energy Institute associate director, said the project "won't really be resolved" until FERC's newest commissioner, Willie Phillips, has his say about it.

"When he does, the decision will be whatever the leaders of the Democratic party and the Washington circuit [court], decide, not the existing members of FERC and certainly not the ... members of the proposed quasi-market," Smith said.

Smith said he thinks SEEM "is merely an attempt to maintain the status quo by creating a rudimentary market with limited access and two classes of membership."

"While [FERC Chairman Richard] Glick is correct in that it is a step forward, it is not a very big step," Smith said.

Forward price trends

Regardless of when and how SEEM is implemented, forward traders appear to foresee weakening prices in the second half of 2022. As of Dec. 15, Into Southern and Florida on-peak power forwards for August through December 2022 were substantially lower than average monthly day-ahead on-peak indexes for the comparable months of 2021. For almost all previous months, 2022 forwards were valued as higher than 2021's comparable monthly average dailies.

Natural gas forwards and spot indexes followed a similar pattern, with most forwards for the second half of 2022 substantially lower than comparable spot numbers in 2021, but with most forwards substantially higher than comparable spot numbers in in the first half of the 2021.

Increased power supply in the region may play a role in lower power price expectations for 2022's second half.

Georgia Power's latest update on its two new Vogtle nuclear generators, each with 1,117 MW capacity, indicates that Vogtle Unit 3 should go online in the third quarter of 2022, followed by Unit 4 in Q2 2023.

However, Georgia Public Service Commission staff and independent construction monitors filed on Dec. 1 an estimate that Unit 3 will likely go online between December 2022 and February 2023.

Solar growth, coal retirements

Solar is also slated to grow substantially in 2022, but that growth faces uncertainty around supply chain issues. S&P Global Market Intelligence data shows 3.3 GW of solar capacity under construction with 2022 commercial operation dates, which would top the 2.7 GW added in 2021, and add to the 19.8 GW installed as of the end of 2020.

The largest solar capacity added in 2021 was 1,104 MW in Florida, but Georgia has 1,146 MW under construction with 2022 planned in-service dates.

However, supply constraints, exacerbated by the recently dismissed petitions for relief from anti-dumping and countervailing duties on solar cells from Malaysia, Thailand and Vietnam, "caused significant shipping disruptions for importers," the Solar Energy Industry Association said Dec. 14.

Jamie Bach, Tennessee Valley Authority Commercial Energy Solution manager, said, "Next year, we can expect headwinds in terms of commodity and supply chain pressures but remain committed to solar growth to meet increased customer demand."

Coal retirements may constrain Southeastern US power supply in 2022, which might strengthen power prices. Platts Analytics data shows 3.6 GW of coal retirements across the region in 2022, focused on Georgia, Tennessee, Florida and Kentucky.

Platts Analytics' Jubert said nuclear and solar additions would more than offset "coal retirements we anticipate through 2022, so the incremental access to supply would offer lower wholesale power prices, as demand is expected to hold flat."

"This is assuming the Vogtle plant is completed next year," Jubert said. "We typically go with what the company's latest proposed in-service date is. However, if they are once again reporting further construction delays then that certainly puts a risk to the 3Q 2022 timeline."