By Teresa Hansen
For many people in the U.S., me included, this winter has been miserable. The polar vortex, which I’m fairly certain was a term only meteorologists had heard before this winter, has wreaked havoc in much of the country. Even the most southern states have experienced temperatures well below normal, as well as paralyzing ice and snow. The Midwest and Northeast, although more accustomed to cold winters, also have dealt with extreme temperatures and frozen precipitation. This type of weather affects few, if any, industries more than electricity providers.
The Electric Reliability Council of Texas (ERCOT), which is responsible for balancing the state’s electricity supply and demand, reported an all-time high winter peak demand Jan. 7 and was required to issue an alert the day before when some 13,000 MW of generation–3,700 MW of forced outages caused by weather–were unavailable from midnight to 8 a.m. ERCOT brought all available electric generation online and deployed all demand response programs that it had contracted. Even with these measures, available generation capacity did not meet demand and ERCOT had to use reserves. By 6:45 a.m. Jan. 6, ERCOT reached the $5,000/MWh cap, and prices remained very close to the cap for one hour. ERCOT’s alert was short-lived. The cold weather-related problem that forced the 3,700 MW off-line Jan. 6 was corrected, and ERCOT met its Jan. 7 record winter peak demand.
Other independent system operators such as PJM and MISO experienced problems, too–some because coal plants that were heavily used have been retired. (Their owners can’t afford to meet environmental regulations.) According to a recent ICF International white paper, “Polar Vortex Energy Pricing Implications–Commercial Opportunities and System Reliability,” the amount of generation off-line in these systems during the early- to mid-January cold snap was “unprecedented.” On Jan. 13, PJM ISO stated that during the top winter demand days of the past five years, the previous high percentage of total capacity forced outage rate was 9 percent. That rate was 20 percent during the polar vortex. The ICF white paper reported that MISO experienced a similar proportion of outages to PJM, having lost some 22 percent of its total generation during the frigid temperatures.
New York ISO and ISO New England fared much better, losing only about 10 and 5 percent respectively of their generation during the polar vortex, according to ICF.
One of the main problems for MISO and PJM was that they relied on natural gas-fired power plants to provide the peak capacity needed. Most of these power plants are seldom used peaking units and, therefore, do not have firm natural gas supply contracts. They instead rely on interruptible gas supplies. Natural gas suppliers met their firm customers’ demand, but with heating demands for gas soaring, they could not meet demands of their interruptible supply agreements. In addition, natural gas prices hit record highs, which drove up electricity rates. On Jan. 21, prices hit an all-time high of $140 per million Btu on the Transco pipeline that runs through the mid-Atlantic, several days after the polar vortex exited the country. At that rate, even those plants with adequate supply cannot generate electricity at rates below the price cap in many systems, including PJM, which has a $1,000/MWh price limit.
ISO-NE, although in one of the most supply-constrained areas of the country, planned for such an event by procuring oil for oil and dual-fuel generators. During its peak demand, these generators supplied as much as 25 percent of the system’s total generation but averaged only 7 percent for all of January.
My article that begins on Page 23, “IsNatural Gas Heats up Generation Discussions Again,” explores the shale gas boom’s impact on electricity generation. During my research, I discovered that those in the natural gas supply business expect the U.S. will have abundant, reasonably priced natural gas to feed electricity generators for decades. But January’s cold weather events tell a different story.
In my article, I touch on supply constraint, but as you can see from the few facts I’ve presented here, the topic is complex and the discussion around it could fill many pages.
The events I’ve mentioned along with many others should remind us that as rosy as natural gas generation’s future seems, too much reliance on natural gas is not a good strategy for electricity generators–at least not yet.
Teresa Hansen, editor in chief