Listen: US power markets weather winter storms with more success

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Tom Tiernan:

Hello and welcome to the Platts Commodities Focus podcast by S&P Global Commodity Insights, where today we'll be talking about extreme winter storms and power market consequences. We've seen in the past how winter storms can wreak havoc on energy systems with rolling blackouts for consumers and policy directives for energy providers to protect their facilities from freezing conditions. And those were after winter storms in 2021 and 2022.

I'm Tom Tiernan, a reporter with the Energy Daily publication, and joining me today are three colleagues who cover different parts of the country, Mark Watson, Jared Anderson, and Kassia Micek. So all three of you have followed market developments and challenges during winter peak demand periods, which are reaching higher levels for a number of reasons, and the challenges are growing to more pockets of the US and Canada, as noted by the North American Electric Reliability Corporation or NERC. That winter assessment would came out just as winter was approaching warned grid operators that compared with just a few years ago, a large portion of North America is at risk with insufficient energy, electricity supplies during winter peak conditions. And following Winter Storm Uri in February 2021, it seems like any extreme weather conditions have all eyes turning to Texas. So let's start there and have Mark relate what's taken place in ERCOT recently.

Mark Watson:

Thanks, Tom. CustomWeather forecast above-normal temperatures across virtually all of the lower 48 in February, but Amperon, another company that forecasts weather for energy markets, has raised the specter of another cold snap in late February. That would be three years after the mid-February 2021 winter storm that left millions of Texans in the dark, some for days. But much has happened in the last three years. For example, there were mandated weatherization of the power sector with penalties for non-compliance. A more comprehensive grid map of critical facilities that need not to be turned off in the event of rotating outages. There was a more conservative grid operations approach maintaining larger reserves for all year long, and there were new ancillary services such as the firm fuel supply service. During the February, 2021 storm, about 6 gigawatts of the gas fleet tripped offline due to lack of fuel, and of the weather-related generation outages, 48% were gas plants.

With so much done though in the past three years. I would've been surprised for ERCOT to have widespread outages this January. I was surprised, however, by the fairly moderate real-time power prices. The market got tighter. It set two new winter peakload records January 15th and 16th, but that was not enough to spend hours in quadruple digits as they did during this past summer, the hottest on record, when they set 10 new all-time peakload records. My sources tell me that batteries likely helped moderate price spikes this January. ERCOT's battery capacity doubled to 2.8 gigawatts in 2022 and almost doubled again to 5.1 gigawatts in 2023.

Tom Tiernan:

So it sounds like positive developments there recently, learning lessons, and as much as ERCOT'S efforts have been informed by that 2021 experience, the Northeast and Mid-Atlantic have dealt with fallout from the late 2022 winter storm. So let's turn to Jared during the mid-January 2024 storm, Jared, how did the markets you cover fare?

Jared Anderson:

Yeah, thanks, Tom. The Northeast held up pretty well, with power demand and prices elevating a bit, but not reaching the levels the ISOs had forecast for this winter. So power prices in ISO New England territory averaged a little over $230 per megawatt hour on January 16, and that was when the power demand was at about 17 gigawatts. But the grid operator had estimated power demand would peak at about 21 gigawatts under colder than normal temperatures this winter. So it didn't reach that level during this past event. Similarly, in the New York Independent System Operator territory, prices were slightly elevated in the New York City area and NYISO had forecast that under baseline conditions this winter, power demand would peak at about 24.2 gigawatts and it got as high as 22.7 gigawatts, during this most recent event. New York City power prices were about $251 per megawatt hour on the 16th and in Long Island, prices were about $148 per megawatt hour, and that's relatively moderate for those highly populated areas during high-demand events.

Neighboring to the west, PJM West prices for this January 16th, they traded about $158. And PJM had forecast peak power demand of about 137 gigawatts for this winter. And peak low reached about 128 gigawatts on the 16th and about 33 gigawatts on the 17th. So again, didn't reach those levels that the ISOs had forecast. A little further west and conditions were a bit more dicey in MISO, the Midcontinent Independent System Operator, peakload reached 105 gigawatts on the 16th and the 17th. They had 36 gigawatts of unplanned power generation outages. But there were no customer outages and strong wind power output helped to maintain reliability. NERC had forecast MISO's winter peakload would be about 94.4 gigawatts under normal weather and could be as high as 103.3 gigawatts under an extreme demand scenario. So the storm did push demand up above those levels, but prices were not extremely high or not as high as we've seen in some of the past winter storms, with real-time prices on the 16th trading at about $135 per hour.

Tom Tiernan:

Okay, so high demand, but prices perhaps not quite at the level of previous winter storms. So I want to branch down into the Southeast where the Tennessee Valley Authority and a few Southeast utilities had to resort to rolling blackouts during late December 2022. Kassia, how did TVA manage this time around with the recent bout of cold weather?

Kassia Micek:

Yeah, things were quite interesting. They asked for conservation ahead of the storm and on January 17th, they actually broke a 17-year peakload record setting a new all-time peakload record at about 34.5 gigawatts. And that actually switched them from a summer peaking region to a winter peaking region, which is quite interesting. They also set the highest weekend day peak on January 21st and also set the highest amount of power delivered in one week for the January 15th through the 21st week, which broke a 14-year record. Now, when you look at prices, they averaged about $112 per megawatt hour from January 16th to the 22nd, which is about three times what spot prices averaged last January.

Tom Tiernan:

So TVA managed well without blackouts this time around. Let's move a little less to the Southwest Power Pool, which is an area you also cover.

Kassia Micek:

Yeah, so in SPP, they set a January peakload record of about 46.7 gigawatts on the 16th. They issued numerous advisories from weather cold weather advisory resource advisory, and actually extended their cold weather advisory by five days, concerns on low wind generation, possible generation facility failures and just high demand. Population-weighted temperatures there averaged about 74% below the normal for that period, which drove up heating degree days about 86% higher than normal. And so we saw prices there at South Hub, their LMP prices were about $330 per megawatt hour on the 15th, which was the highest since February 2021 storm. And during that 2021 storm was the first time that SPP had to declare conservative operations and actually direct power service interruptions. So there was a lot of anticipation of how the system was going to hold up in future winters.

Tom Tiernan:

Yeah, it seems like conservative operations is getting to be a theme with grid operators following past storm experiences. And moving farther west, winter is often not much of a factor for West and Northwest. They've managed past winter storms without much impact on markets in the past few years. But that region saw a few challenges in January. Is that right?

Kassia Micek:

Yeah, so when we were looking at power outages across the US, we constantly saw the state of Oregon had the highest level of outages. And reaching out to one of the major utilities there, Portland General Electric, they had outages peak around 165,000 on January 13th. Now they quickly restored outages, however, they kept having back-to-back storms and that really wreaked havoc on their transmission lines. Their spokesman said that crews were often able to restore outages just for another one to occur in the same area because of ice and wind. And we saw freezing rain and winds actually damage electrical lines. The Northwest AC Intertie, which takes a lot of that hydropower that the Northwest is known for and sends it down into the population pockets across the west, they saw capacity on that line drop as lines were knocked offline with the weather. And that line actually went negative 2.6 gigawatts.

So they were receiving power as opposed to sending it out. And we've seen that trend in recent years with these extreme weather events that they're now needing power if they're low on hydro over the summer or now with these winter events. And the Bonneville Power Administration up there, they saw an all time peakload record on January 13th of 11.4 gigawatts about, and their spokesman said basically, anytime we see loads above 10 gigawatts, it's pretty uncommon, and usually that's only observed during these extreme cold snaps. Now turning to prices, Mid-C on-peak day-ahead prices reached a five-month high, about $920 per megawatt hour, and prices over the week that the storm covered, they averaged about $300 per megawatt hour, which is more than double what they were a year ago, but still did not set any records there. And just to add some context, a little further south in northern California, NP15 LMPs jumped up to about $200 per megawatt hour, which was the highest since summer peaks.

Tom Tiernan:

Sure. Great. Thank you. I think we're all seeing a lot more interconnected nature of the energy systems in different parts of the country compared with smaller pockets in the past. Now we're all energy reporters and we're not meteorologists, but I think it's safe to say compared with some of the past winter storms that had longer duration and breadth of coverage, the recent winter storm in January was shorter in length. It didn't put as much stress on power and gas systems as seen in the past. Do we all agree with that or do you know of any lessons that are applied from past experiences? Go ahead, Mark.

Mark Watson:

Yeah, one of the issues that I think that was key in the success of the Electric Reliability Council of Texas avoiding significant problems was that there was very little precipitation, to the extent that there was some outages in some isolated areas. There was some accumulation of ice on lines or trees nearby and stuff like that. They were mostly transmission related, not so much related to generation outages. So precipitation was a big issue.

Tom Tiernan:

Okay, thank you. And Jared, I believe you said MISO had somewhat of a similar conclusion, although they experienced, you mentioned the gas power plant outages were returning.

Jared Anderson:

Yeah, they did have a higher level of gas outages during this most recent event, but in terms of lessons learned from previous extreme weather, MISO continues to survey and coordinate with members. Winter preparedness and fuel efficiency, importantly. And they've also implemented a seasonal resource adequacy construct and a seasonal power generation unit accreditation to better ensure adequate power supplies. And as you mentioned, I mean pretty much all the ISOs have been taking steps to winterize generators where needed and have been adding other measures to maintain reliability as these extreme weather events seem to be becoming more common.

Tom Tiernan:

Yes. Yeah. As a reporter in Washington among us, I can't resist providing a bit of a Washington policy perspective where the chairman of the Federal Energy Regulatory Commission, Willie Phillips, and his colleagues have committed the utilities and grid operators for managing the recent bout of winter weather, but they also cautioned, of course, that winter has several months left. And we all know how weather can create problems, especially when gas production and delivery systems have glitches, and that we've written stories about the gas and power sectors been trying to improve coordination with prodding from federal and state regulators without much success for several years. But that could be a topic for a future discussion. Thank you all again, that's all the time we have right now, but if you want to learn more about how the US power markets fared in January, make sure to watch out for the North American Electricity Short-Term Forecast coming out in a few days. I also want to invite our listeners to the 2024 World Petrochemical Conference taking place March 18 through the 22nd in downtown Houston. The WPC will feature thought leadership and experts from across the entire chemical value chain. So whether you're interested in carbon markets, olefins, polymers, emerging technologies, or anything in between, this is the must-attend petrochemical conference of the year. We'll include a link from the WPC on our show notes, so click that and register to learn more. This Commodities Focus episode was produced by Jennifer Pedrick in Houston.