ISO Market Recap – First Half of 2014



ISO Market Recap – First Half of 2014

Author: Velocity Suite ISO Data Analyst

It’s July 2014 and the energy markets are preparing for a busy summer. But before we get too far into the summer, it’s good to reflect. The first months of 2014 were eventful to say the least- hectic and frenzied might be more apt depending on the day and region. Here’s a quick review of what the ISO Team (EV Market Ops and FTR Trader) thought were some of the highlights of the first two quarters of 2014.

Record Peak Demand

Did you know that every ISO had higher demand this winter compared to last? Polar Vortex, limited gas supplies, high market prices- it all happened this winter. And whereas last winter a lot of the issues were focused in the northeast, this year the entire country felt the impact of cold weather on the grid. Here’s a quick summary:

In New England, the market monitor noted that Q1 2014 energy costs were 83% higher this winter compared to last. This is related to higher gas prices and higher reliance on oil capacity for generation.

Figure 1: ISONE Monthly Generation by Fuel Type – Winter
ISONE Monthly Generation2

The ISO relied on more oil generation as a percentage of total generation in December 2012 than in the colder months of the 2013-2014 time frame, so many of these items are not “new” to the ISO.

After last winter and the impacts of gas on the energy market ISONE adjusted market timelines. The ISO noted that this resulted in incremental improvements in unit commitment and availability. More is in the pipeline (literally) in the New England region. This includes expanded gas pipeline capacity, continued coordination between ISOs and improved coordination between the electric and gas sectors.

New England Reports for more reading:
ISO New England – 2014 First Quarter Quarterly Markets Report
Informational Filing of the Day-Ahead Energy Market and Reserve Adequacy Analysis Timing Report

FERC mandated electric to gas coordination:
FERC Natural Gas – Electric Coordination

In New York, a new winter record demand peak was set on Tuesday, January 7th. This was over 1,000MWs higher than the peak observed last January. Average real time hourly prices at the hub were over $250/MWh on this date. NYISO activated demand response resources to counter the high demand on the grid. High prices in NYISO were not limited to just this date, as limited gas supplies meant high prices throughout the winter.

In California, gas supply issues across the US meant a scarcity pricing event on February 6th. Scarcity pricing events are unusual. Although this was not the highest demand day in California high gas prices meant high LMPs for this gas dependent system. There were lessons learned from the California event. More gas was committed than could be provided. As a result CAISO is working with FERC to better incorporate the most recent gas prices into its day ahead dispatch.
California ISO – Gas Events and Market Results of February 6, 2014

Just like CAISO, SPP experienced a similar price spike in early February. This resulted in the highest prices observed in the ISO since 2008. Although gas is not the largest type of fuel in the SPP, it is often the fuel on the margin. A supply curve can help demonstrate this. As demand increases and nears peak demand levels, gas units are more likely to be dispatched. The last unit to run is the marginal unit and it sets the energy price across the region. The marginal costs for some of these units can exceed $80, $100, or sometimes even $120/MWh. This will result in high prices across the grid.

Figure 2: SPP Supply Curve with $8 Natural Gas
SPP Supply Curve2

PJM saw similar results. An interesting item in the news that could be worth following is the pending suit between Duke and PJM. Duke is seeking to recover costs associated with obtaining high priced gas during the coldest days of last winter for its Lee Units. The units were required to be available as a result of its participation in the capacity market and PJM generation warnings. Eventually, only a few of the units were dispatched for a few hours in the day ahead market and none were dispatched in real time.

Figure 3: Lee Transactions in End of January 2014 (Power Transactions Module)
Lee Transactions2

More information at the links below:
RTO Insider – PJM Backs Duke’s $9.8M ‘Stranded Gas’ Claim
E&E Publishing – Duke-PJM drama raises more questions about energy market alignment

We’re excited to see how all of these items will develop through the remainder of 2014. We generally see less in the realm of gas constraints during the summer months, but cooler weather is just around the corner so more analysis is on the horizon.

SPP Day 2 Market Launch

The biggest ISO market event so far this year has been the SPP Integrated Marketplace launch. This happened on March 1st 2014 (and has an entire blog post dedicated to it.) Some of the major market updates include implementation of a day ahead market, transmission congestion rights (TCRs), an ISO-wide ancillary service market, an updated real time market and a system-wide balancing authority. The market includes a number of items that improve and enhance data analysis in SPP like hub price nodes and a componentized LMP.

Figure 4: Visualizing SPP Trading Hubs
SPP Hubs3

Figure 5: Higher Congestion and Loss Prices in SPP South equate to higher DAH LMPs
SPP South Hub2

Figure 6: DAH LMPs are lower in the North as a result of lower loss and congestion prices
SPP North Hub2

Three months into the new market, SPP North congestion and loss prices have trended negative. Whereas SPP South congestion and loss prices are often positive, although not as severe as the negative values noted in the northern part of the footprint. It’s likely these trends will continue as they were present even in the previous real time balancing market.

CAISO RT15 Market Implementation

SPP is not the only region with new data and new markets. On May 1st CAISO launched its fifteen minute market (FMM). This market allows real time participation for both internal generator resources and interties (previously, the real time market was limited to just internal generators and the hour ahead market was for interties). This is the market type now being used to settle convergence bid results, first for internal nodes, but later for the external interties when they become biddable again.
In simple terms, what does this mean? It means the big solar and wind plants that are outside of the CAISO region (and which are vital to helping California meet its ambitious renewable portfolio standards) now have a new and improved means for participating in ISO market.

Figure 7: WECC Proposed Renewable Energy
Map Image2

The map above demonstrates some of the large renewable power plants that could be integrated into the California footprint. This includes wind energy from the Pacific Northwest and Montana as well as solar from Nevada and Arizona. Geothermal energy is also a qualifying fuel for RPS and these types of resources are abundant in non-CAISO areas of California and Nevada.

On average the five minute market price averaged higher than the fifteen minute market price in the first two months of the FMM. This was driven by a few hours in May where the spread was significant. In June we did notice a reverse trend where fifteen minute prices were higher. This will be interesting to watch throughout the summer as the new market becomes more familiar to the region.

Figure 8: Trends have shifted between RT5 and RT15 markets
CAISO Market Spread2

ERCOT ORDC

ERCOT launched a major market update on June 1st 2014- the ORDC price adder. ORDC stands for Operating Reserve Demand Curve and it represents a real time price adder to the ERCOT price. The ORDC was established to put a value on having sufficient reserves. The intent is to ensure reliability and continue to encourage investment in ERCOT. The ORDC data is reported for online and offline resources in both the fifteen minute and five minute market results.

Figure 9: Price Adder to Demand Comparison
Ercot Demand2

The previous chart compares the number of fifteen minute intervals where the price adder (online resources) was greater than zero to the hourly demand for ERCOT. The price adder is often cleared above zero during times of higher system demand.

As Texas demand continues to increase with the heat of the summer, this will be another item to keep an eye on. This could also get interesting if the summer demand peaks occur earlier than expected- as some new capacity resources in ERCOT are not expected to be online until later in the summer.

Capacity Market Auctions

Many of the ISOs run forward capacity auctions. In April, MISO cleared its second capacity market auction under its new procurement mechanism (Resource Adequacy). This market runs for the next planning year (2014-2015). This was the first time the annual auction included the new MISO South LRZs.

PJM and ISONE have three-year forward auctions, meaning the auctions that occurred in 2014 cover the 2017-2018 planning year. These auctions and the participation in them is indicative of upcoming retirements and potential shifts in generation by fuel type. A number of Exelon nuclear units did not clear in the PJM auction. There are also number of nuclear and coal units that were not included in ISONE as well. ISONE had a shortfall this year, which resulted in some of the highest prices we’ve seen in the capacity markets. Only NYISO NYC monthly spot market rates from the past year have been higher.

What Else?

The ISO team expects to see more from the ISOs around renewable energy. It is a regular occurrence to see wind and solar generation records broken. Transmission upgrades and footprint expansions are unlocking more potential for renewable energy across the ISOs.
Drought concerns continue across most ERCOT and CAISO. Hydro generation is down and water use in other forms of electric generation is being closely monitored.

Summer is when we typically see the highest demand in most ISOs, so it’s inevitable that new stories will pop up over the next few months.

We’ll also be busy with new reports, new data and updated ISO market portals. This includes website changes at SPP and ISONE, updates on demand response in the ISOs as a result of the FERC Order 745 decision, Extended LMP computations in MISO and the addition of PacifiCorp to CAISO this fall.

Stay tuned!

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