Extreme Cold Sweeps through the US



Author: Velocity Suite Power Markets Analyst

Mother Nature took cold to new extremes in early January, 2014 breaking records and sending temperatures 20 or more degrees below normal minimums (Huffington Post Cold Weather Report). The cold temperatures affected most of the country’s energy Independent System Operators with peaking demands, spiking prices and fluctuating data across the board. Most of the analysis in this document is based on market and weather results from the coldest day in the region – January 7, 2014.

To better understand the magnitude of this January’s cold spell, we can compare minimum temperatures throughout the US to temperatures during the cold snap. In the south and southeast, normal minimum temperatures in January are in the 30’s and 40’s. Single digit temperatures are not uncommon in the midwest and northeast. Throughout the midsection of the US including the bulk of the PJM system- minimum temperatures hover around the teens and 20’s, but do hit single digits in the far north.

1-NormalColdMap_2
 
This January, however, polar-like temperatures covered most of the country. Temperatures during the coldest hours were close to 30 degrees below normal. Extreme cold was prevalent. As you can expect, low temperatures like this had major effects on the energy markets throughout the country, driving higher prices, altering natural gas flows, and spiking system loads.

2-2014ColdMap_2
 
To better understand the impact of the cold weather we’ll dig into some of the details of the data. First, ISO prices. Cold weather can change LMPs considerably and its not unusual to see regional spikes resulting from outages or larger system wide price spikes from weather events. In general- we’ve seen real time prices that tend to sit in the $20 to $30 range with only mild extremes reaching about $50 on the high end and -$20 for the lows.

3-NormalLMPMap_2
 
This year, as expected, we saw much more dramatic fluctuations in prices. For the 6:00 AM EST hour (Hour Ending 7:00) prices were consistently higher. Low prices in the region dipped to about -$35 for the hour, but high end prices sky-rocketed well over $100 throughout the region and even higher than $1,000 for much of PJM.

4-2014LMPMap_2
 
These high prices persisted for most of the region during the cold snap- and the high prices were found in DAH and RTH markets. The following graphics compare ISO prices across zones and years (2014 including just the first two weeks of the year). Every ISO in the eastern section of the US had substantially higher prices.

New England ISO:
5-ISONEPrices

Ontario/IESO:
6-OntarioPrices

MISO:
7-MISOPrices

PJM:
8-PJMPrices

NYISO:
9-NYISOPrices

The cold temperatures never impact just ISO prices. We can explain these high prices by digging into what drives ISO prices- demand and gas prices.

Graphing system loads allows us to review the true spike in demand, by ISO, for this time frame. Comparing the last three weeks of system loads in PJM, we can review how demand increased dramatically in January of this year as temperatures dropped to sub-freezing temperatures. Overall, the dramatic increase in system load helped to drive the prices upwards during this time frame of extreme cold.

10-WeathervsLoad_2
 
In the Northeast specifically, high prices spiked due to increased load, but also due to increased natural gas prices. The normal Day Ahead Natural Gas prices (averaged over multiple years) only reach from $5 to $8 / mmbtu during the cold months like January but rarely rise above that.

11-NormalICEPrices_2
 
In January, 2014, however, the Day Ahead Indices saw prices as high as $28. This trend spread through most of the major trading hubs in the Northeast. The ISO’s in this region saw higher energy prices due to their increased dependence on natural gas as a fuel source and, with higher natural gas prices, more gas is acquired and delivered to residential customers as opposed to electrical plants, which causes an additional increase in energy prices. This exacerbated the already elevated prices in the region due to increased system demand.

12-2014ICEPrices_2
 
Looking at the historic weighted average for Day Ahead Gas prices shows how high the 2014 prices really reached. While much of the US actually had lower prices, the spike hit hard where it mattered, in the regions that have a higher demand for natural gas.

13-ICEPricesbyISO_2

In comparing January, 2013 to January, 2014 in ISO New England, we see that significantly more gas is being delivered to Residential customers in 2014, which causes less to reach Electrical Plants. This also led to increased energy prices in the region.

14-GasFlowtoIndustry_2
 
To look at this in more detail we can isolate our research to ISO New England, who uses a large amount of natural gas in their generation fuel mix. Looking back as far as 2003, ISONE has never had Day Ahead ICE Prices this high, Max LMP Prices this high, or even daily average LMP Prices this high. January, 2014 marks the highest monthly average prices EVER in the region.

15-ISONEGastoLMPMonthly_2
 
…And prices have only spiked more in the last week as temperatures dropped and the need for gas increased. Day by day gas prices have a direct relationship to LMP prices.

16-ISONEGastoLMPDaily_2
 
The cold spell in January not only brought out the jackets, but also dramatically influenced the energy markets, though the extents of the affects are still shaping. The cold weather, reaching the extremes that it did, will alter trends in all areas of the energy market. We have also noticed more binding constraints with higher shadow prices for this time frame, and we expect to see dramatic changes in generation patterns, and FTR performance as more data becomes available. Everything is connected in the energy market. Cold or hot.

17-BindingConstraints_2
 
Also, if you want another example of analysis using Velocity Suite for this type of review, check out this document published by the FERC.

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