Commodities 2022: Winter concerns to weigh on MISO, but pricing mostly stable

Lingering doubts about supply and transmission constraints across the Midcontinent Independent System Operator's vast footprint following mid-February's deadly storm could prompt forward power traders to hedge winter season risk, but the rest of the 2022 curve indicates expectations for stable pricing.

January on-peak forwards at the Indiana and Louisiana hubs, for example, were about three times day-ahead on-peak locational marginal price averages for January 2021 as of Dec. 20, while the February on-peak forwards were roughly commensurate with February 2022's extraordinarily high averages LMPs of $81.70/MWh and $64.37/MWh, respectively.

Tyler Jubert, a power analyst for S&P Global Platts Analytics, said MISO has implemented emergency pricing reforms and improved scarcity pricing, and it is targeting the second quarter to implement enhancements to alleviate capacity-driven price blowouts, but the impact of the enhancements will be unknown until next summer.

"Therefore, this winter still remains vulnerable to emergency alerts driven by high congestion and/or capacity shortages," Jubert said. "However, again barring any major storms, forward power prices for summer 2022 should continue to trend down with gas prices."

The National Weather Service Dec. 16 forecast for January, February and March indicates near-normal temperatures for much of MISO's northern third, with 33% to 60% increased chances of above-normal temperatures for the remainder.

MISO foresees adequate resources for winter demand, with a probable 106-GW capacity, spokesman Brandon Morris said in a recent email, but it is acting on two areas of risk: extreme weather and fuel supply issues.

Fuel supply data requests

MISO is implementing a mandatory weekly fuel supply data request to fossil-fueled generators, it said at a December Reliability Subcommittee meeting. The grid operator decided to initiate data requests after a survey found about 20% of MISO's coal-fired fleet was at high risk for fuel supply problems this winter.

A recent drop in gas prices has increased the likelihood of a stronger return in gas generation in 2022, Jubert said, but MISO's fuel mix will depend on how winter progresses.

"So far, the relatively mild winter combined with the strong return in gas production means there will be plenty of gas in storage come the end of winter, barring any major storms such as last February," Jubert said. Gas prices will likely continue falling, incentivizing coal-to-gas switching.

No transmission project planned for 2022 will substantially reduce congestion MISO faced in 2021, according to Jubert. "If anything, I would expect emergency alerts to increase as more wind capacity is added to MISO's grid," he said.

A 345-kV line recently came online in the wind-heavy Minnesota, MISO's Morris said. The Blue Water Reinforcement project is expected to relieve congestion on multiple 345-kV circuits by mid-2022, and a 230-kV project is projected to enhance reliability near West Monroe, Louisiana.

At least another 1 GW each of wind and solar capacity could come online between December 2021 and July/August 2022 that could add to grid instability and price volatility, Jubert said, but the impact may be limited if MISO can implement the proposed enhancements.

MISO's Interactive Generation Interconnection Queue shows 11.2 GW of generation under construction, with negotiated in-service dates of 2021 or 2022, led by 7.1 GW of solar, almost 3 GW of wind and almost 1.2 GW of gas-fired generation. Actual in-service dates often differ substantially from negotiated in-service dates.

In contrast, Platts Analytics data indicates that about 2 GW of coal-fired capacity is likely to retire at MISO in 2022.

Policy priorities

Resource adequacy and regional transmission planning will be MISO's key 2022 policy priorities.

MISO in November sought Federal Energy Regulatory Commission approval to transform its resource adequacy program over three years to seasonal, from annual, starting with the Spring 2023 planning resource auction.

The new construct is required according to MISO because the grid's growing reliance on wind and solar, combined with generator outages and extreme weather, has created capacity shortages outside the summer season, previously MISO's RA construct focus.

The RA construct would help MISO reduce reliance on maximum generation declarations for reliability. Of 40 such declarations since 2016, 60% were outside of the summer months, MISO said.

MISO CEO John Bear said in December the grid operator will issue in 2022 its second regional resource assessment to evaluate reliability changes in resource mix for the future.

MISO plans to file its cost allocation proposal in January for long range transmission planning projects to help accommodate renewables growth required for state and utility clean energy goals.

MISO aims to pursue LRTP project tranches, which could cost $100 billion under the most aggressive decarbonization scenarios. MISO hopes to seek the first LRTP project tranche's board approval in June, and the second tranche of projects could be approved later in 2022, Bear said.