Overall, the ERCOT grid is in a better position from a reliability perspective than it has been in since ERCOT moved to a level EEA 3 emergency status early Monday morning. The Entergy portion of MISO has also improved dramatically. On the gas front, curtailments and operational flow orders remain in place for many commercial and industrial customers from the Midwest south into Texas. Here’s the latest on the various markets:
- ERCOT remained in an EEA 3 status until about 9:00 this morning. It has now moved to EEA 2 and stopped administratively adjusting real time prices to $9,000 / MWh. After one interval in the $3,000s, prices have settled in the last 2 intervals in the $30s / MWh. This precipitous drop could be an error, we are waiting for more intervals to clear to confirm this price level. There have been no ERCOT ordered rolling brownouts since Thursday morning, however ERCOT had remained in EEA 3 due to the precarious balance of supply and demand on the grid and the potential that rolling brownouts could be needed again on short notice. Having made it through the Thursday night and Friday morning peaks though, it appears we should have seen the last of the rolling brownouts from this event.
- As of Thursday evening, 36,000 MW of generation was on forced outage, of which 21,400 MW was thermal (natural gas, coal, nuclear), and 14,600 MW was wind and solar. Forced outage means that the generation unit is not available to produce electricity if called upon. Causes of this vary. For the natural gas plants, some have been unable to receive supply of natural gas due to pipeline companies struggling to meet the enormous demand for natural gas for heating. Other gas plants as well as coal and nuclear plants have experienced malfunctions due to the extreme cold that are preventing them from operating (freezing coolant system pipes, gas freezing in lines, etc.) For wind and solar, wind have seen the bigger impact with many turbines in West Texas freezing up and unable to produce electricity.
- It’s unclear what impact ERCOT’s decision to remain in an EEA 3 status through this morning had on real time power prices. When the PUC issued its emergency order on price formation Monday evening, it ordered ERCOT to include the effect of firm load shedding (aka rolling brownouts) in the calculation of real time prices. This virtually guaranteed that as long as rolling brownouts continued, real time prices would remain at the $9,000 / MWh offer cap. The order did not relate to remaining in an EEA 3 status, which is normally accompanied by rolling brownouts. We expect prices to start to come down from the $9,000 / MWh price cap at some point today as generation continues to come back and loads decline due to warmer temperatures.
- The next important factor in power price formation will be spot natural gas prices. Gas Daily for the Houston Ship Channel has settled between $180 – $400 / MMBtu over the past several days. Today’s price came down into the $50’s / MMBtu, and the weekend potentially is looking to be in the $20s / MMBtu. For a marginal peaking natural gas plant that might have a 20 MMBtu / MWh heat rate, at $180 – $400 / MMBtu gas prices this would translate to a $3,600 – $8,000 / MWh cost for generating electricity. So, how quickly real time power prices decline from the $9,000 / MWh offer cap will depend a great deal on how quickly spot gas prices decline. Gas Daily for the weekend package (Saturday – Monday) will settle today and that price point will have a great deal of impact on power prices for the next 3 days. A settlement in the $20s / MMBtu would really help settle down prices.
- On the gas front, many industrial customers remain curtailed to some degree due to the record cold and diversion of gas to heating needs and power plants. Given the rising temperatures, we expect curtailments to begin to be lifted as early as today or tomorrow.
- Looking forward, the level of spot gas prices in the coming week will depend largely on weather and how quickly production that was subject to well freeze offs returns to the market. U.S. daily natural gas production bottomed out around 70 Bcf / day this week (it had been running at about 90 Bcf / day). Texas saw the most freeze offs at 8 Bcf, followed by Louisiana at 4 Bcf. Getting this gas production back online will be key to moderating spot gas prices.
