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MISO warns of potential winter capacity shortfalls, tight US coal supplies

Highlights

US EIA projects shrinking coal inventories

PRB coal hits 20-year record high price

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Midcontinent Independent System Operator is warning that it could face capacity shortfalls in January if there is high demand and high generation outages, while also raising concerns that generators across the Eastern US could have a hard time getting coal this winter.

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High gas prices are pushing coal plants to run more often, and some power plants are struggling to maintain their coal inventories heading into winter. Tight coal supplies and increased coal prices will be felt particularly in MISO, which is the country's largest coal-burning region.

But it is not just MISO, the entire eastern interconnection is starting to talk about coal availability, J.T. Smith, senior director of MISO operations, said Oct. 26 at MISO's winter readiness workshop. "It is starting to be a concern and I think folks are starting to take action on that," Smith said.

Coal constraints

Pre-winter coal inventories in the US are roughly 30% lower this season compared to last, according to stockpile estimates by S&P Global Platts Analytics. MISO primarily burns Powder River Basin coal, which hit a 20-year record high price on Oct. 26.

"Producers have talked to buyers and yes there is coal for them under RFPs to some extent but we're seeing a little higher push than we usually do," Daniel Vaughn, principal at Coaldesk, said of the spot coal market. "I'm not sure there's enough coal. I don't want to sound doom and gloom but it is tight."

S&P Global Platts on Oct. 27 assessed December-delivered PRB 8,800 Btu/lb coal at $35/st, based on an indication of value at $33/st, matching the Oct. 26 record for the highest price since the assessment began Jan. 5, 2001.

"There's essentially no coal in the Eastern market and very limited high heat coal in the PRB market, so where do you draw the line?" Vaughn said. When asked if US spot coal supplies were likely to improve in November, he said, "Oh no. It won't look better until January of 2023."

MISO generator owners have indicated potential issues with coal supply and transportation because there is no excess capacity to meet increased demand, said Brandon Morris, a MISO spokesperson. "MISO if focused on situational awareness for ourselves and our members in order to maintain reliability of the system," he said.

MISO winter forecast

Under typical demand and outage scenarios, MISO is projecting there will be adequate firm resources to meet demand this winter, according to an Oct. 26 MISO presentation. But if there is high demand and high outages, there could be operational issues in January, the presentation said.

When MISO reduces the projected availability of load modifying resources in line with last year's performance, MISO could have even more challenges in January, even after accounting for the potential extra wind generation that emerges in winter, according to the presentation.

Meanwhile, PJM Interconnection started looking into the coal supply issue in August, Mike Bryson, senior vice president for operations in PJM, said in an interview. At that time, power plant owners raised concern about the supplies of chemicals they use to manage emissions, and PJM discovered generators were worried about coal supplies as well, he said.

PJM rule

Last week, PJM issued a temporary rule that will give coal plants more flexibility to restock their coal supplies this winter. The rule allows PJM to request that a generator to move its steam units, which are generally coal-fired, into the maximum emergency category if it has less than 10 days of fuel remaining, PJM said on its website.

The maximum emergency category allows the plant to bow out of the generation stack while it replenishes its coal supplies, PJM said. The unit can stay in maximum emergency status until it has 21 days of fuel inventory, PJM said.

The prior threshold for maximum emergency status was 32 hours of fuel, but PJM realized that timeframe would be cutting it too close for coal plants, Bryson said. Coal is supplied by barge, so it is not easy to resupply in a short timeframe, he said. It is typical for coal units in PJM to have 30-60 days of coal supplies on hand, he said.

The US Energy Information Administration has noted that secondary inventories of coal at electric utilities decreased in the first half of 2021, and it forecasted that this trend will continue into the second half of 2021 and 2022, according to its October Short-Term Energy Outlook.

Entering maximum emergency status is voluntary for a power plant, Bryson said. The temporary rule is only in place until April 1, 2022, because there might be other solutions that would be better in the long term, he said. In addition to the maximum emergency rule, PJM is also collecting inventory data for coal and oil on a weekly basis through the winter, he said.

PJM is also considering whether to extend the maximum emergency status for oil as well, Bryson said. Dual fuel units may tend to run on oil this winter due to high gas prices, so maximum emergency status could allow them to burn gas instead and reserve the oil for backup, he said.

The biggest impact on power prices in PJM will probably come from high natural gas prices, Bryson said. While gas production and storage levels are good, high gas prices are likely to increase the burn of both coal and oil in PJM, he said.

Overall, PJM is in pretty good shape heading into winter, Bryson said. "I think we are in a reliable position, but we wanted to dig in on some of these potential issues so we are able to manage them going into winter," he said.

SPP outreach

Southwest Power Pool is aware of recent coal supply concerns and is reaching out to members to assess impacts and any changes to resource availability for the upcoming months, said SPP spokesperson Meghan Sever. Currently, SPP members have not communicated concerns with resource availability beyond planned outages, Sever said.

Coal is a small part of the generation mix in ISO New England, accounting for 2% of system capacity and generating 0.13% of energy consumed in New England in 2020, said Matt Kakley, an ISO-NE spokesperson.

ISO-NE is in regular communication with generators and pipeline operators throughout the year, and particularly during the winter, Kakley said. The grid operator also publishes a 21-day forecast looking at system conditions, weather, demand, fuel inventories and other information, which identify potential shortfalls early enough to allow appropriate action, he said.

"While we don't project natural gas prices, we would expect to see higher electricity prices at the wholesale level this winter due to higher fuel prices, relative to recent years, given what we're seeing globally in terms of fuel prices," Kakley said.

New York state has not had any coal-fired generation since March of 2020, said Zachary Hutchins, a spokesman for New York Independent System Operator. NYISO will hold a winter readiness briefing in early November.