Polar vortex caused extreme swings in energy prices, strained U.S. power grids

Source: Daniel Cusick, E&E reporter • Posted: Thursday, January 16, 2014

The polar vortex that enveloped much of the eastern United States in subzero temperatures last week was a huge boon to electricity and natural gas companies, a new report from the consulting group ICF International has found.

Daily wholesale electricity prices between Jan. 3 and 6 saw extreme swings, from as low as $40 per megawatt-hour to nearly $800 per MWh, with the greatest spikes experienced in the Electric Reliability Council of Texas (ERCOT) territory Jan. 6, followed a day later by most other Eastern power markets.

Natural gas prices also saw significant upward pressure, from $4 per million British thermal units to as high as $40 per MMBtu, with the highest prices concentrated along the Eastern Seaboard from New York to Boston and in regions covered by the PJM Interconnection grid.

“Wholesale power price increases were caused by many factors, notably high and fluctuating delivered natural gas pricing, generation supply shortages, and differing market structures,” the ICF research report states.

The highest recorded real-time electricity prices for the cold snap were seen in Texas’ ERCOT territory, a problem compounded by the region’s low electricity reserve margins, according to ICF’s analysis. Elsewhere, on Jan. 7 real-time power prices reached $761 per MWh in PJM’s Eastern hub, a 400 percent increase from the day before. And a similar one-day percentage increase was seen in New York City’s grid, where real-time power prices surged from $104 to $419 per MWh.

ICF’s researchers found that the principal driver of the price spike was an upward surge in delivered natural gas prices caused by a quick rise in demand combined with pipeline constraints that limited the amount of gas that could be shipped into regions most needing it. “Natural gas prices in New England and eastern New York reached record highs on Jan. 7, with midpoint prices ranging from $35 to $40 per MMBtu and bids as high as $100 per MMBtu,” the report notes.

A summer problem appears in the winter

At the same time, most power grid operators in the eastern half of the country saw a rise in power outages Jan. 6 and 7, prompting officials with PJM, ERCOT and the Midwest Independent System Operator (MISO) to issue alerts to those offloading power.

It appears PJM fared the worst of the five major eastern grids, according to the report, with more than 36,600 megawatts taken offline Jan. 6 due to forced outages, followed by a temporary reduction in voltage on its wires to keep parts of the grid from being overloaded. ICF noted that PJM’s problems may have been affected by its “very large reliance on interruptible load” and the fact that it contracts generation only for the summer season, making it more vulnerable to winter price swings.

“PJM reported significant problems maintaining system security during the evening of Jan. 6 (in addition to having high prices) and indicated that it interrupted load with interruptible contracts,” the authors noted.

Moreover, the report questioned whether the eastern grid’s performance was affected by an overreliance on natural-gas-fired electricity generation in light of recent coal plant retirements and fuel switching to natural gas, increased reliance on summer-only assets, and the rise of intermittent energy resources like wind and solar power.

Those factors, “combined with market structure changes, may be inadvertently compromising grid reliability and/or resulting in very high prices that might be avoided,” the report states, and it recommended that a detailed forensic examination be done to determine the precise factors that led to the three-day run-up in prices.