Weekly Energy Market Updates by Region - Archive

Issue week: October 22nd, 2020  (Wk 43)

POWER MARKETS

WEST As the Pacific Northwest looks forward to a lingering cold front this weekend, an attendant increase in residential and commercial demand is expected to produce some near-term volatility in prices. In CAISO, outage season continues as expected during this time of the year. The Day Ahead ATC average for the month to date in CAISO is around $45/MWh for both SP15 and NP15.

ERCOT  Buoyed by natural gas prices surging despite the absence of heating demand and an abundance of gas to handle a cold winter, term power prices have continued to climb this week by some $0.30-$0.40/MWh. Meanwhile, real-time prices have cleared in the high $10s/MWh to low $20s/MWh, save the occasional triple-digit print during the super-peak hours. The ORDC adder remains at nearly $3.00/MWh.

EAST Day Ahead prices have been more bullish this week than in recent weeks. In MISO, they are averaging $27/MWh, 19% above last week and the highest of the past eight weeks there. Over in NYC, Day Ahead is print-ing, on average, 18% over last week but still within range for the past eight weeks. Similarly, Day Ahead prices in PJM West Hub have increased by 17% from last week yet also remain within range for the past eight weeks.

CAPACITY PRICE SHOCK POTENTIALLY ON THE HORIZON

After Exelon announced at the end of August that it plans to shutter two nuclear plants totaling 4 GW of capacity in PJM next year, Vistra declared late last month that, by the end of 2027, it will phase out seven of its coal plants to take more than 3 GW of additional dispatchable power offline in each of PJM and MISO. Together, these developments could mean eventual price increases in the capacity markets in both regions.

Although Exelon’s announcement could be just a political ploy to procure renewable energy credits, its nuclear plants will need to be monitored for future pricing. On the other hand, Vistra actually plans to backfill some of its coal retirements with renewables. However, renewables generally provide much less output than coal and nuclear over time because of their inferior reliability. Therefore, even if Vistra manages to replace these plants with an “equivalent amount” of renewables, total capacity is still bound to shrink. Assuming no major policy or technological advancements that increase the capacity factors of renewable-generation facilities, capacity prices should start to climb.

The prospect of higher capacity charges is far from ideal but serves as a reminder of the importance of supporting the progress of emergent technologies to improve the capacity factors of renewable resources. There is no real way around it in the short term, for the era of renewable energy has arrived. New Jersey and Illinois are considering the adoption of “Fixed Resource Requirements” (FRR), an alternative whereby utili-ties could secure their resource adequacy outside the PJM capacity market, but FRR is already widely considered a much more expensive alternative. Moreover, its associated costs would only skyrocket with the coming reduction in dispatchable generation.

In the meantime, Calpine Energy Solutions has plenty of options to help your company mitigate the impact of rising capacity costs. Please reach out to your Calpine Energy Solutions sales representative to learn how to reduce your exposure.