Polar Stress Test Revisits Gas-Powered Grids

As 2017 closed out, a deep freeze set in, chilling much of the United States to record-low temperature levels.

Artic air moving down from the “polar vortex” had invaded, again. To coin a phrase from HBO’s popular series Game of Thrones, “winter is here.”

While the deep freeze remains in place, electric power grids seem to be responding much better compared to the 2014 polar vortex experience, when a similar cold spell created power reliability concerns.

Here is a look at the experiences (so far) in two multi-state power grids—ISO New England (ISO-NE) in the Northeast and PJM Interconnection (PJM) in the Mid-Atlantic.  These grid areas are of particular interest during chilly times, given their increasing reliance on natural gas.

Natural Gas Demand and Price

In late 2017, Bloomberg reported that U.S. natural gas demand jumped 31% to 115.7 Bcf in a matter of just a few days (from Friday 12/22 to Tuesday 12/26), as cold temperatures boosted natural gas usage for both space heating and power generation. By Monday, January 1, the U.S. had consumed more gas than ever before, reaching an all-time demand high of 143 Bcf.

Prices for gas in the Northeast (e.g. Algonquin citygate) tripled to $35.35 per MMBtu, and prices in the Appalachian region (e.g. Tetco M3) also surged.

Just a few years ago on January 7, 2014, U.S. natural gas demand surged to over 137 Bcf in response to the artic vortex blast.

The January 2014 freeze sent prices much higher than what has so far been experienced, but the rest of January 2018 is going to get even colder! In January 2014, spot natural gas prices for the Algonquin citygate reached $73/MMBtu, and TETCO M3 hit over $68/MMBtu.

Grid Performance Then

Now, let’s take a look back. The challenges presented by the January 2014 arctic air blast have been well documented.  PJM saw a 22% forced outage rate on January 7, 2014.  This means 22% (40.2 gigawatts) of the total generation supply in PJM that was supposed to be available to supply power, was unavailable due to coal (13.7 GW) and natural gas plant outages (9.7 GW) mostly related to equipment failures, natural gas fuel supply interruptions (9.3 GW), and other factors.

PJM instituted emergency procedures in order to maintain reliability, including calling on 2,000 MW of demand response on January 7, 2014. In certain areas of PJM, power prices hovered around $2,000/MWh at certain times.

On the same day, ISO-NE experienced just 15 forced generation outages representing only 1.5 GW of capacity, and did not call for emergency procedures. Most of these outages had to do with issues related to natural gas fuel procurement challenges. ISO-NE largely attributed the comparatively mild 2014 polar vortex impacts to cold weather procedures and programs put in place after a “cold snap” in 2004. 

ISO-NE’s winter preparedness program—which will be replaced later this year (i.e. 2018) by a pay-for-performance program similar to PJM’s capacity performance rules—incents eligible generators to firm up fuel supply (e.g. dual-fuel, LNG) and promotes demand response. ISO-NE called about 21 MW of demand response on January 7, 2014.

Grid Performance Now (so far…)

Now, fast forward to the present.  PJM issued a cold weather alert for December 30 to January 2, but did not expect any issues or emergencies, nor has PJM called penalty or performance hours under the capacity performance rules.  The main story in PJM is reliability doesn’t seem to be a concern, yet.

The next story in PJM is coal. Bloomberg reports that coal-fired generation exceeded natural gas generation in PJM during the recent deep freeze, as natural gas price increases made coal generation more competitive. On January 2, coal powered 37.4% of the PJM supply mix, followed by nuclear (27.7%), natural gas (23.1%), oil (6.5%) and other fuels, a fuel mix similar to what was experienced during the January 19, 2016 winter peak.

Also, prices in PJM are lower this time around. Day-ahead power price data from SNL Energy saw PJM western hub on peak prices rise to $115.50/MWh on December 28 (day-ahead on-peak prices in PJM’s western hub were $262.45/MWh on January 8, 2014).

Oil seems to be the big story in ISO-NE. On January 2, oil-fired generators that usually contribute about 1% of the grid’s power supplied over 34% of the generation mix, as dual-fueled natural gas generators found it more economic to run on oil instead of surge-priced natural gas. ISO-NE typically relies on natural gas as its primary fuel to power the grid, but also faces gas pipeline constraints.

An Ongoing Test

The pronounced and prolonged cold temperature spell will continue to test these and other power grids, especially grids where natural gas plays a large role in the supply mix.  And, the stakes are high. 

Specifically, this experience will impact efforts to promote or thwart U.S. DOE’s proposed rule to guarantee compensation for coal and nuclear units in competitive markets, which some argue are more resilient because they store fuel on-site.

A few other questions are: Will PJM call capacity performance hours for the first time, and what will the financial penalties and bonuses look like for generators?  How will environmentally conscious New England states react to the massive increase in dirty oil burning? And, how long will on-site oil supplies last?

Next up is the “bomb cyclone”—as in a fast drop in atmospheric pressure, not a cyclone that is super cool (i.e. is “da bomb”). This upcoming storm threatens to drop temperatures on the east coast even lower, further stressing power grids.  Stay tuned!