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Calif. power prices trade near $600/MWh in heat wave

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Calif. power prices trade near $600/MWh in heat wave

California ISO wholesale power prices spiked near $600/MWh on Aug. 17, with load forecast to reach the highest level in nearly two years later in the day as the state faces the potential for additional rotating power outages for the first time since 2001.

A statewide "flex alert," which urges consumers to voluntarily conserve energy when power demand could outstrip supply, has been extended to Aug. 16-19 for the hours between 3 p.m. and 10 p.m. local time due to a heat wave.

CAISO is soliciting any available capacity using its Capacity Procurement Mechanism authority in order to meet system needs caused by the ongoing heat wave, according to a notice from the grid operator. Scheduling coordinators with available capacity not offered into the intramonthly competitive solicitation process should immediately contact CAISO if they will accept a 30-day Capacity Procurement Mechanism designation at the soft offer cap of $6.31/kW-month.

"We are scouring [neighboring footprints for] additional generation," ISO CEO Steve Berberich said during an Aug. 17 CAISO Board of Governors meeting on the situation. However, he added, the heat wave spans across the western U.S., so out-of-state resources might be needed to meet local demand.

CAISO expected load to peak near 49,800 MW in the 5 p.m. to 6 p.m. PT hour on Aug. 17, with available capacity near 46,000 MW, leaving a gap of 3,600 MW, Mark Rothleder, CAISO's market policy and performance vice president, said. By 8 p.m. PT, load was expected to be near 47,428 MW, but capacity will fall to 43,000 MW as solar generation declines with the sun waning, leaving a gap of more than 4,400 MW.

"The situation we are in could have been avoided," Berberich said, adding that the resource adequacy program is "broken and needs to be fixed," something CAISO has brought up numerous times through California Public Utilities Commission filings. There is a shortage of 4,700 MW through 2022, with the shortages starting this year, but only 3,300 MW has been authorized for procurement, starting in 2021, Berberich said.

"It is near certain we'll have to ask utilities to cut off power to millions [Aug. 17], [Aug. 18] and beyond," Berberich said. "We loathe having to cut off power."

Hot temperatures drive demand

"A persistent, record-breaking heat wave in California and the western states is causing a strain on supplies, and consumers should be prepared for likely rolling outages during the late afternoons and early evenings" through Aug. 19, CAISO said in the flex alert. "There is not a sufficient amount of energy to meet the high amounts of demand during the heat wave."

Excessive heat warnings and heat advisories are in effect through Aug. 19 for most of California, the interior Northwest and desert Southwest, according to the National Weather Service. In some locations, temperatures are expected to surpass 120 degrees F.

CAISO forecast peak load would top out around 49,800 MW on Aug. 17, 48,920 MW on Aug. 18 and 47,850 MW on Aug. 19, though figures are adjusted constantly. All three exceed CAISO's summer peak forecast of 45,907 MW. So far in August, peak load in CAISO's footprint has averaged 38,133 MW, 14% below the August 2019 average.

The all-time peak load record is 50,270 MW, which was reached July 24, 2006.

"The 2006 event is a very similar weather event to what we're facing now," said John Phipps, CAISO's director of real-time operations. However, there was more capacity in 2006. The two San Onofre Nuclear Generating Station units, with a combined capacity of nearly 2,200 MW, have closed since then.

In 2017, peak load topped 50,000 MW, and the gap was met with imported power because the rest of the western U.S. was experiencing a heat wave, but imports are drying up, Berberich said.

"There simply is not enough power to fulfill the load," Berberich said. "Battery won't fix this alone."

Power imports over the Aug. 14-16 period were 10% higher than the Aug. 1-13 average and 5% higher than the August 2019 average, according to grid operator data.

Weak renewables compound situation

A continued forecast of lower-than-expected renewable generation is putting a further strain on the grid.

Solar generation across the ISO footprint averaged 4,560 MW from Aug. 1-12 then dropped 63% to 2,686 MW on Aug. 13 and averaged about 3,600 MW from Aug. 14-16. Solar output is forecast to average 3,860 MW from Aug. 17-21, a 10% drop from the month-to-date average.

Likewise, wind generation averaged 2,500 MW from Aug. 1-13 then dropped to an average of 686 MW during Aug. 14-15. Wind output is forecast to average 2,100 MW on Aug. 17-21, 1.4% below the month-to-date average.

The loss of 1,00 MW of wind power across the state Aug. 15, in addition to the unexpected loss of a 470-MW natural gas-fired power plant, led CAISO to declare a Stage 3 emergency, with rotating power outages across the state to maintain grid stability. A Stage 3 emergency was also issued Aug. 14 after the loss of a 475-MW gas-fired plant.

Increased demand for gas

Demand for gas on the Southern California Gas Co. and Pacific Gas and Electric Co. systems has remained high since Aug. 14, averaging 2.87 Bcf/d and 2.64 Bcf/d, respectively, up 24% and 26% compared with month-to-date averages, according to S&P Global Platts Analytics data.

SoCalGas has withdrawn inventories from the Aliso Canyon facility on four consecutive days for the first time since early April.

More than 1 Bcf/d has been withdrawn from Aliso Canyon since Aug. 13 and additional draws are likely the week of Aug. 17, with demand expected to remain high. Platts Analytics data indicates Aug. 17 on-system demand will hit a summer-to-date high of around 3.38 Bcf, more than 1 Bcf/d above the prior 30-day average.

The jump in demand pushed gas pricing across major hubs to summer-to-date highs, with basis to Henry Hub at SoCalGas city-gate trading at $10.97/MMBtu for Aug. 18 flows, after averaging only 88 cents/MMBtu since the start of August. This is the first time basis has been observed at this level since Feb. 20, 2019, when it settled at $19.68/MMBtu. SoCalGas city-gate basis has only settled above $10/MMBtu eight times since February 2019, and all occurred during that month.

Power prices spike as demand jumps

SP15 on-peak day-ahead for Aug. 18 traded at nearly $600/MWh on the Intercontinental Exchange, a 38% day-on-day jump, as on-peak balance-of-the-week traded in the low $360s/MWh, a 12% increase on the day, and on-peak next-week traded around $150/MWh, up 67%.

In comparison, SP15 on-peak day-ahead locational marginal prices have averaged $75.62/MWh so far in August, although that is up 148% month on month and up 114% year on year. Prices reached as high as $396.08/MWh for Aug.17 delivery, a record high, according to ISO data.

In neighboring markets, Palo Verde on-peak day-ahead traded above $1,400/MWh on ICE, the highest price seen since S&P Global Platts began assessing the location in October 1994. Palo Verde on-peak has averaged $85.08/MWh so far this month, up 114% compared with July's average and 110% higher than a year ago, according to Platts data.

Power forwards also increased.

SP15 on-peak September jumped 13% on the day to trade in the mid-$60s/MWh on ICE, as NP15 on-peak September rose 6% to be valued in the upper $50s/MWh.

Convergence bidding suspended

Due to the current system conditions, the ISO suspended the ability of all scheduling coordinators to submit virtual bids for trading day Aug. 18 due to it impacting the ISO's ability to maintain reliable grid operations.

Convergence bidding was suspended so the ISO might have a more transparent indication of the physical resources clearing, Berberich said.

"The ISO may suspend the ability to submit virtual bids for subsequent trading days if adverse conditions continue," according to the ISO.

The ISO first noticed the developing situation a week ago and started issuing notices to return any power that was offline and reschedule any work that would take generation offline.

The ISO initially issued a restricted maintenance operations notice for Aug. 14-17 in anticipation of high loads and temperatures across the footprint and followed with a flex alert Aug. 14. Historically, there is a 400-MW to 500-MW response from a flex alert, Rothleder said.

Kassia Micek is a reporter for S&P Global Platts. S&P Global Platts and S&P Global Market Intelligence are owned by S&P Global Inc.