Surge in wind generation, wires capacity in Southwest draws differing opinions

Experts differed Dec. 28 about the power reliability and bilateral wholesale pricing impacts of feeding an extra 3 GW of wind power into the Southwest, as Pattern Energy's SunZia Wind and Transmission project is slated to do in 2026.

Pattern Energy announced Dec. 27 it had completed financing on an $11 billion transmission and wind project in Arizona and New Mexico, the largest clean energy project ever in the US, which could have an impact on Southwest bilateral power pricing. Construction started in September.

The 550-mile, 525-kV high voltage direct current project would feed power from Pattern Energy's 3.5 GW of wind capacity in central New Mexico's Lincoln, San Miguel and Torrance counties south to the Las Cruces, New Mexico, area, then west to the Phoenix area.

The closest bilateral power hub to the wind farm is at Four Corners, where the Arizona, Colorado, New Mexico and Utah state lines intersect. The closest power hub to the western terminus of the HVDC line is the Palo Verde hub, so named for the nearby nuclear-powered 4-GW Palo Verde Generating Station.

Dispatchable power need seen

"When wind is near capacity, it will drop almost the equivalent of another Palo Verde worth of energy in South Central Arizona," said Morris Greenberg, S&P Global Commodity Insights senior manager for North American power analytics.

"Ultimately, much of that energy will move west to California, but in the interim, that is negative for basis at Palo Verde," Greenberg said Dec. 28. "I don't see much of a negative in terms of reliability as long as adequate reserves are available."

In contrast, Eric Smith, associate director of the Tulane Energy Institute, said "the devil is in the details," as the addition of so much intermittent power creates a need for additional dispatchable capacity to meet demand when wind diminishes.

"While it is possible that there may be existing surplus dispatchable power available at some utilities along the route, I doubt that it will add up to 3 GW," Smith said in an email Dec. 28. "The result will mean an increase in prices to the ratepayers who do consume the resulting power, either directly or in the form of additional surcharges for the purchase of dispatchable power to guarantee a continuous supply to ratepayers.

Scott Miller, Western Power Trading Forum's executive director, said adding much renewable energy "may suppress prices during the middle of the trading day," but resource adequacy constructs "and the need to true up power during the net peak may help support prices because of the need for thermal generation during the net peak."

"I think the need to balance the new resources may make the desire for a broader market to move power of all kinds may increase the urgency of utilities and generators to have a big regional network market -- initially of the day-ahead variety," Miller said.

Factors affecting pricing

Gurcan Gulen, a Boston-based senior fellow of the United States Association for Energy Economics, said the SunZia project's price impacts depend on several factors, including prices before the project comes online.

S&P Global's Platts-assessed day-ahead on-peak Palo Verde indexes had a day-weighted average of $70.57/MWh in 2023 through Dec. 28, down almost $25.50, or 26.5%, from the 2022 day-weighted average of $96.07/MWh. S&P Global's M2MS Forward Curves on Dec. 27 showed the 2024 12-month strip having a day-weighted average of more than $81.80, up $11.25, or almost 16%, from 2023's day-ahead on-peak average.

The year-to-year changes were less striking for the Four Corners pricing hub. The 2023 day-weighted average day-ahead on-peak indexes was about $75.40/MWh through Dec. 28, down by more than $24.25/MWh, or 24.3%, from 2022's day-weighted average of about $99.65/MWh. The day-weighted 2024 strip averaged almost $77.90/MWh on Dec. 27, up less than $2.50, or 3.3%, from 2023's day-ahead on-peak average.

"The prior average prices will depend on the marginal generation," Gulen said in an email Dec. 28. "If the marginal generation is mostly gas-fired, and gas prices stay 'low,' SunZia may not lower the wholesale prices (and vice versa)."

Another factor is the addition or subtraction of other generation, Gulen said.

"Interestingly, if consensus expectation is for SunZia to lower wholesale prices, some dispatchable assets may retire sooner than expected, which can lead to price spikes and reliability concerns," Gulen said. "I am always concerned with reliability when non-dispatchable resources are added, but presumably, system operators in the regions modeled the impact of the SunZia project on their systems."

However, "sufficient solar capacity build-out" could enable wind and solar combined to reduce the need for additional dispatchable capacity, Gulen said.