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Market monitor sees wind power boosting SPP's price volatility, congestion costs

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Market monitor sees wind power boosting SPP's price volatility, congestion costs

The Southwest Power Pool's surging wind fleet prompted negative real-time pricing to double in 2017, price volatility to almost double and congestion costs to jump by 70%, a report released May 11 concluded. Expanding transmission could improve the situation, an industry official maintained.

The "2017 State of the Market Report," produced by SPP's Market Monitoring Unit, or MMU, concludes that SPP's market results "were workably competitive, with infrequent mitigation of offers and high resource participant levels."

"While day-ahead and real-time prices both averaged around $23/MWh for the year, real-time price volatility nearly doubled in 2017 compared to 2016," the report states. "Much of this volatility was the result of short-term transient ramping related price spikes," it said, adding that the incidence of negative prices doubled last year to roughly 7% of all real-time intervals, up from about 3.5% the year before.

Day-ahead and real-time congestion costs totaled more than $500 million in 2017, up from less than $300 million in 2016, which the report said was "related to continued development of wind resources and transmission limitations in the SPP system."

Michael Skelly, president of Clean Line Energy Partners LLC, a transmission developer active in the region, said the solution for negative pricing, price volatility and high congestion costs is to "build more transmission."

Wind resources grew about 9% to 17,600 MW of nameplate capacity by the end of 2017, which was on top of a jump of almost 30% between 2015 and 2016. In contrast, coal-fired capacity fell by 4.5% from 2016 to 2017, following a 6.5% drop from 2015 to 2016.

Revenues too little to support coal

"SPP continues to have significant excess capacity at peak loads," the report states. "The MMU estimates that capacity at peak is 30% higher than the peak demand level in 2017. Market prices themselves do not signal new investment in generation. Furthermore, MMU analysis shows that market revenues do not support going forward costs for coal resources."

Skelly foresees more coal retirements, despite the fact that coal plants provided the largest single share, about 46%, of SPP's electricity in 2017, because coal "can't compete."

That 46% total is down from 48% in 2016 and 55% in 2015, while wind's share has jumped from less than 14% in 2015 to almost 18% in 2016 and 23.3% in 2017, according to SPP data.

Mark Watson is a reporter for S&P Global Platts which, like S&P Global Market Intelligence, is owned by S&P Global Inc.