Polar Vortex 2019: How Did Power Markets Weather the Storm?

Polar Vortex 2019: How Did Power Markets Weather the Storm?
Blog February 13, 2019

A polar vortex slammed the U.S. from January 30 to February 1, hitting the country in stages, starting in the Midwest, Mid-Con, and the South before moving to the Northeast and New England.

With the 2018 Bomb Cyclone still fresh in everyone’s mind, the markets were ready for their next big test. But ultimately changes to infrastructure, a preponderance of LNG, and the short duration of the cold contributed to the markets remaining relatively calm during the storm.

New England beat the chill with record-setting LNG levels that kept natural gas prices low and limited oil generation to less than 2 percent of total supply. Despite Boston temperatures that averaged fourteen degrees below freezing, the price of natural gas hovered around $6.50/MMBtu on the Algonquin pipeline and never came close to 2018 levels of over $15.00/MMBtu. The relatively low prices resulted from the highest LNG sendout on record in New England. Algonquin injected 620.8 MMBtu/day of LNG and New Brunswick imported an average of 512 MMBtu/day from their Canaport LNG facility. And, the Cove Point LNG facility in Maryland provided more than 800,000 MMBtu/d of LNG sendout to the Northeast’s most constrained trading hub, Transco Z6-NY. The sendout crushed Algonquin basis spreads and further drove down New England’s gas prices. This was even further compounded by the force majeure at TETCO M2’s Berne compressor station following a gas explosion, which eliminated over 50 percent of total North to South export capacity from the Marcellus Shale region.

PJM – all bark and no (frost)bite due to increased capacity and new gas infrastructure. As the demand forecast for the last days in January grew clearer, PJM’s demand forecast predicted January 31 would surpass the all-time winter demand peak of 143.3 GW set in February 2015. This buildup led to weeklies contracts trading well over $100. But, prices settled well under market expectations for January 30 to 31 because:

  1. PJM available capacity reached record levels: On January 30, PJM internal scheduled capacity surpassed 170 GW, higher than any day last year. PJM had over 30 GW more capacity than what was necessary to cover the demand peak, providing flexibility to dispatch generation effectively and to mitigate sustained high energy prices.
  2. Eastern gas prices did not see the same volatility as January 2018: While gas prices slightly increased, they were not nearly close to the same levels as 2018. When Cove Point delivered LNG to Transco on January 30 and 31, the system saw an additional 1 BCF of natural gas. Infrastructure improvements such as Atlantic Sunrise and Mountaineer Xpress also relieved pressure on Transco Z5 and Z6, increasing takeaway capacity from the Marcellus Shale region.
  3. Demand verified over 4 GW below PJM’s initial expectations: Ultimately, demand topped out at 138.9 GW on the morning of Thursday, January 31, never coming close to the 143.4 GW all-time demand peak. This underperformance decreased Real-Time (RT) volatility substantially as less generation was required for redispatch during the balancing day.

In New York, wind put the sting in the cold and also kept electricity prices down. Despite the extremely weak RT markets, the impacts of strong wind generation were felt across NYISO. Although wind generation failed to set a new record, falling about 70 MW short on Wednesday during Hour Ending 18, it served four percent of power demand at peak hour. Given gas prices, the New York supply stack, and the fact that coal ran near capacity, without this wind generation, oil generation would need to fill the gap, spiking electricity prices and emissions.

The challenge of managing MISO’s aging generation fleet, dependent on renewable sources of energy, was on full display during the Polar Vortex. By most indications, the region came through in the clutch, primarily thanks to the quick-response of gas plants that fired up to meet the strong demand. However, the day revealed some of the ugly truths about relying on renewable energy during extreme conditions. Expectations for the morning of January 31 included bountiful wind generation, but quickly escalated into a mad-dash to ramp up high-cost gas units as wind turbines could not function in the Antarctic-like temperatures. This resulted in a 6 GW generation deficit throughout the morning. Consequently, energy costs throughout the Midwest rocketed from $34/MWh at 6am CT to $578/MWh by 9am CT.

Nor were coal plants, the life blood of MISO, spared the effects of the polar blast. According to Genscape monitors, at least four coal plants in Illinois and Indiana, representing nearly 4.5 GW of sorely-needed capacity, failed to deliver power at various times throughout the day. Overall MISO saw capacity on outage jump from 28 GW on Tuesday night to 34 GW on Wednesday morning, according to ISO forecasts.

Fortunately for Midwesterners, after a couple similarly challenging days last year (see January 17, 2018 and September 15, 2018) MISO took steps to improve its responsiveness to managing extreme weather events. By 2:38am CT, when the magnitude of wind underperformance became abundantly apparent, MISO declared the first step in the chain of max generation alerts, instructing utilities to prepare non-committed emergency resources. At 6:19am CT MISO raised the max generation alert to level 2a/b, securing load modifying resources and emergency energy purchases. While the morning still featured several hours of stratospheric energy prices, MISO's efforts arguably limited energy price volatility to a couple hours in the morning rather than a day-long occurrence.

As cold weather persists throughout the winter, Genscape’s power market analysts and meteorologists will keep you ahead of the game. Through our PowerIQ service, we help U.S. power market participants optimize their buying and selling strategies, identify new trading opportunities and analyze congestion risks across multiple hubs and zones. Whether a Polar Vortex or a Bomb Cyclone, we create comprehensive forecasts and can prepare you for what’s to come. Be sure to stay out of the cold this winter and request a demo today.