This graph from the EIA utilizing S&P Global Market Intelligence data shows that regional wholesale electricity prices tend to spike in certain regions due to extreme weather events in those regions. The reasons for these six major price spikes are as follows:
The biggest spike is in ERCOT of Texas in February 2021 due to an extreme cold system for which the region was not adequately prepared. Natural gas system freeze-offs were the main culprit.
In July 2021 we see spikes in California and the Pacific Northwest due to a prolific heatwave, particularly in the Pacific Northwest.
The next major spike occurred in the ISO-New England region in January 2022 due mainly to a cold snap which led to inadequate natural gas pipeline deliveries. Natural gas generation declined 14% from previous weeks before the cold snap. In some hours 20% of generation was provided by fuel oil. Limited availability of LNG was also a factor in the spike. On peak demand days, LNG contributes up to a whopping 35% of New England’s natural gas supply. That LNG must be bought on the spot market, the price of which in January 2022 was very high. Paradoxically, that LNG is imported not from the least expensive supply in the US but from Latin American countries like Trinidad and Peru. I believe this is due to Section 27 of the 1920 Jones Act which requires LNG tankers to be American ships with American crews, and lack of availability of those tankers. Three import terminals, two in New England and one in Eastern Canada with a total capacity of 2.2 BCF/day are available to import. About 42 LNG tanker loads were delivered from 2018 through January 2022. LNG was in good supply before the cold snap but at least 4 tankers were received in January 2022 at those very high spot prices. Buildout of adequate natural gas pipeline capacity would drastically reduce both the burning of more expensive fuel oil and the need for more expensive foreign LNG bought on the spot market.
The next major spike occurred due to a Texas heatwave in ERCOT in July 2022. The problem was exacerbated by decreased wind output due to low wind speeds. Natural gas use filled the void.
In September 2022 another heatwave in the Western US occurred. Prices spiked in California and especially the Pacific Northwest. Natural gas prices were very high at the time, and it was again increased natural gas use that kept the grid powered. In California this natural gas use increases especially from 5PM to 9PM after solar generation drops.
Finally, in December 2022 cold weather and winter storms in the Pacific Northwest caused very high spikes in wholesale electricity prices due to the need to burn more natural gas. This was only a few months after the previous heatwave caused more natural gas burn. Regional natural gas prices spiked to record levels due to low regional gas storage volumes.
In addition, Winter Storm Elliott, the “bomb cyclone” that affected much of the central and eastern US in late December 2022, led to quite a bit of fuel switching due to insufficient regional energy supply. As in Texas in 2021, this caused much natural gas supply to be diverted to home heating and regional natural gas prices spiked in the eastern US. There were also significant outages. During the peak of the storm on December 24, 41% of ISO-New England electricity was provided by fuel oil. This amounted to nearly 6GW. Carbon emissions rose from 0.28 to 1.14 metric tons of CO2 per MWh. This occurred over a span of about 4 days. In the US Southeast in the territories of TVA and Duke where household heat is 70% electric versus 17% electric in the Northeast, this caused electricity demand to skyrocket from 10.1GW a few days earlier to 22GW on December 24. It was also the first time in TVA’s 90-year history that thay had to direct targeted load curtailments due to extreme power demand. TVA also noted that “during a 24-hour period on Friday, Dec. 23, TVA supplied more power than at any other time in its nearly 90-year history. This event also produced the highest winter power peak in TVA history.” Both TVA and Duke implemented short duration rolling blackouts. They are both currently conducting reviews of the events. Duke implemented rolling outages on about 15%, or 500,000 of its customers. “This is the first time in our company’s history that we had to implement rolling service disruptions, and although the majority of our power plants performed well in the storm, the outage process did not go as smoothly as we would have liked and we did not deliver the reliable performance that our customers expect,” said Kendal Bowman, North Carolina state president. There were also issues with automated switches freezing up which had to be operated manually. This caused the outages to be longer than anticipated.
The graph shows that regions with the highest amount of coal and natural gas provide the most stable wholesale electricity prices and immunity from spikes. The coal-heavy MISO region has had the most stable prices through this time period. Even though high natural gas prices accounted for some of the spikes in West, those prices have come down a bit to more normal levels and are expected to remain there. The advent of higher volumes of LNG trade has led to natural gas pricing being tied less to regional supply and demand and more to global supply and demand. This has led to higher natural gas prices even where supply is usually adequate. These examples also show that it is natural gas that often fills the void as well as coal and fuel oil in some regions.
References:
Wholesale
Electricity Prices Were Volatile in 2022. Energy Information Administration.
January 10, 2023. U.S.
Energy Information Administration - EIA - Independent Statistics and Analysis
New England
natural gas and electricity prices increase on supply constraints, high demand.
Energy Information Administration. Today in Energy. February 3, 2022. U.S. Energy
Information Administration - EIA - Independent Statistics and Analysis
New England
natural gas prices increase due to supply constraints and high demand. Energy
Information Administration. Natural Gas Weekly Update. January 20, 2022. Natural
Gas Weekly Update (eia.gov)
California
fuel mix changes in response to September heat wave. Energy Information
Administration. September 21, 2022. U.S. Energy
Information Administration - EIA - Independent Statistics and Analysis
Natural gas
spot prices in the western United States nearly reached or exceeded
$50.00/MMBtu in December. Energy Information Administration. Natural Gas Weekly
Update. December 22, 2022. Natural
Gas Weekly Update (eia.gov)
Extreme Cold
and Power Availability: The Texas Blackouts are Mainly Due to Lack of
Winterization of Natural Gas Systems: The Problem with Electrifying Everything.
Kent Stewart. Blue Dragon Energy Blog. February 17, 2021. Blue
Dragon Energy Blog: Extreme Cold and Power Availability: The Texas Blackouts
are Mainly Due to Lack of Winterization of Natural Gas Systems: The Problem
With Electrifying Everything
Winter Storm
Elliot Squeezes Eastern U.S. Power Grid. Joe Warner, BTU Analytics. January 10,
2023. Winter
Storm Elliot Squeezes Eastern U.S. Power Grid | BTU Analytics
TVA Accepts Responsibility, Starts Full Review. Tennessee Valley Authority. Press Release. December 28, 2022. TVA Accepts Responsibility, Starts Full Review
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