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Energy Prices Always Go Up (Part 4)

As discussed several times previously on this blog, there is a common perception that energy prices always go up.  We have examined both natural gas prices (read here and  here) and electricity prices (read here).

In this post, we look again at electricity prices—specifically, how they behaved in PJM last year.

PJM zonal day-ahead load weighted average Locational Marginal Prices (LMPs) averaged $50.92 per megawatt-hour (MWh) during 2010 and $45.19 during 2011, an 11.3% decline.  During 2012, this weighted average price dropped to $34.55 per MWh, a further 33.6% decline.  This is a stunning decrease and was driven primarily by the decline in natural gas prices.  Electricity and natural gas prices are strongly correlated in PJM as natural gas-fired generating units are generally the marginal units called upon in PJM’s least cost dispatch model.

LMPs vary significantly by zone, as shown on the graph below.

The change in average LMPs between 2011 and 2012 varied by zone but, in all cases, was lower during 2012.  The decline ranged from 19.4% in the Commonwealth Edison zone to 35% in the Atlantic City Electric zone.  A sampling of zonal price changes is presented in the table below.

The overall decline can also be seen in the further contraction of prices into the lower end of the frequency distribution shown below.

From January 2007 to December 2012, Day Ahead LMPs in PJM averaged $46.57 per MWh.  This corresponds to the period during which PJM has in place its capacity market model, referred to as its Reliability Pricing model (RPM).  Current LMPs are well below this average, as shown in the graph below.

The LMPs plotted above are in nominal dollars and do not take into account inflation.  The effect of inflation can be illustrated by increasing the right side of the red line relative to the left side.  In other words, in real dollars, the decline in electricity prices in PJM is more dramatic than shown.

Do energy prices always go up?  The answer remains “no” as it relates to electricity and natural gas prices.

The Avalon Advantage – Visit our website at www.avalonenergy.us

Copyright 2012 by Avalon Energy® Services LLC

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What Does a Superstorm Look Like?

In previous blog posts, we have examined how weather and other events affect electricity prices.

What Does a Derecho Look Like?

What Does a Warm Day Look Like?

What Does an Earthquake Look Like?

We continue this series by looking at how Superstorm Sandy impacted electricity prices in the PJM service area.

After marching northward off the shore of the Atlantic coast, almost 1,000 mile wide Hurricane Sandy became Superstorm Sandy.  She made a sharp left turn and headed due west.  The eye of the storm, along with its tidal surge and 90 mile per hour winds, then made landfall in southern New Jersey around 6:30 PM on Monday, October 29, 2012.

The storm’s destructive winds caused extensive damage to property along its path.  This damage led to large and rapid reductions in electric load, first in New Jersey, the Delmarva Peninsula and New York, and soon thereafter, elsewhere in the Northeast.

As the storm approached land, the locational marginal prices (LMP) of electricity in the Mid Atlantic were about $40 to $50 per megawatt-hour.   After landfall, in the areas where the hurricane hit hardest in PJM – New Jersey and the Delmarva Peninsula – LMPs dropped dramatically and turned negative.  The image below is of a contour map of LMP prices in PJM at 9:10 PM on Monday, October 29.

The phenomenon of negative LMPs occurs from time to time, but is infrequent.  Negative LMPs rarely drop so far, across such a wide area, and for such an extended period of time as occurred here.  Negative LMPs even backed up into eastern and northern Pennsylvania.  The areas that were less affected by the storm, such as mainland Maryland and Virginia, maintained more normal LMP levels.

The graph below shows select PJM LMPs over the course of the entire day (midnight to midnight, Monday, October 29), before and after landfall of Superstorm Sandy.

Electricity prices remained fairly steady overall within PJM over the course of the day, with a peak occurring around 10 AM.  After the eye of the storm hit land, LMPs in the PSEG Zone (the largest electric utility in New Jersey) first spiked upwards and then turned negative for more than three hours.  At one point, LMPs in the PSEG Zone approached negative $400 per megawatt-hour (see pink line above).

System wide, load within PJM declined as the storm approached, landed and barreled into New Jersey, Delaware, Pennsylvania and New York.  This progression can be seen by the steepness of the change in instantaneous demand starting around 6 PM on the blue curve below.

Closer to the eye of the storm, in the Atlantic City Electric Zone (AE Zone), load began to fall off starting around 10 AM, continued to drop throughout the afternoon, showed some short lived recovery around 8 PM, and then fell precipitously thereafter.

Further north and west in New Jersey, in the Public Service Electric and Gas Zone (PS Zone), load similarly exhibited a slow fall off after noon and then a rapid decline starting around 6 PM.

In the Philadelphia Electric area, (PE Zone) load peaked at about 10 AM, slowly declined at first, and then also dropped off sharply starting around 6 PM.

The graph below shows the impact of Superstorm Sandy on the movement of power into and out of the PJM grid.  During most of the day, PJM was importing about 2,200 MW and continued to do so until about 10:30 PM when, the need for power greatly reduced, imports from adjacent grids fell dramatically.

The following day, Tuesday, October 30, LMPs were volatile and mostly positive as shown on the graph below.  This volatility was caused by the episodic restoration of generation, transmission lines, and sub-stations and distribution lines.

The overall decline in load PJM-wide and its subsequent slow recovery can be seen on the graph below.

This graph shows the AE Zone slowly recovering.

Load in the PS Zone also recovered slowly but in an even more sporadic manner.

Load recovery in the PE Zone followed a similar pattern.

Conclusion

The high winds, rain and tidal surge associated with Superstorm Sandy caused devastation to a large area of the Northeast.  Negative LMPs are generally short lived, transitory phenomena.  The magnitude of the initial damage caused by Superstorm Sandy can be seen by the highly negative LMPs that occurred over such a wide area, and for such an extended period of time.   This was a result of rapid decline of load and the inability of supply to be ramped down quickly to match the reduced level of load.

Notes:

– “PJM” refers to the PJM Interconnection, which is a Regional Transmission Organization and operates the electric transmission system serving all or parts of Pennsylvania, New Jersey, Maryland, Delaware, the District of Columbia, Illinois, Indiana, Kentucky, Michigan, North Carolina, Ohio, Tennessee, Virginia, and West Virginia.

– Satelite image from www.weather.com.

– Other data and maps from PJM.

– David White and Evelyn McDonnell contributed to this article.

The Avalon Advantage – Visit our website at www.avalonenergy.us, call us at 888-484- 8096, or email us at jmcdonnell@avalonenergy.us.

Copyright 2012 by Avalon Energy® Services LLC

 

 

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What Does a Derecho Look Like?

Late Friday, June 29, 2012 a destructive set of thunderstorms swept through the Mid-Atlantic region.  With winds of up to 80 mph, the storms produced extensive damage and left several million utility customers without electricity.  The National Weather Service (NWS) refers to this kind of fast-moving, long-lived, large, and violent thunderstorm complex as a “derecho.”

On the NWS map below, blue marks indicate reports of damaging wind.  Black squares indicate winds over 75 mph.

The graph below shows PJM system wide load during the day of Friday, June 29, 2012, with demand peaking at 147,183 MW at 16:20 (blue line).  Late in the evening, you can see the drop off in demand resulting from the storm, with the most rapid decline starting around 22:00.

The map below shows LMPs at 23:45 on Friday, 6-29-12, shortly after the storms had passed over Washington, DC and Baltimore but had not yet reached their full intensity on the Delmarva Peninsula and in southern New Jersey.  LMP prices in the legend are in dollars per megawatt-hour.


On Saturday, 6-30-12, demand in PJM reached only 120,024 MW at 17:30 (see blue line below), a reduction of more than 27,159 MW, or more than 18% lower than peak demand the day before.

The graph below shows demand within the Pepco Zone during Friday, 6-29-12.  Demand in the Pepco Zone reached a peak of 6,592 MW at 16:30 and then slowly dropped to about 5,500 MW by 22:30.  Then the storm hit.  As the storm made its way over Pepco’s service territory, demand plummeted by 3,000 MW, or 45%, in less than one hour as much of the distribution system was damaged and service rendered inoperable.

The following day, Saturday, 6-30-12, demand in the Pepco Zone continued to decline until 07:00, when it reached a low of approximately 2,300 MW.  Later the same day, demand peaked at only 3,939 MW, a reduction of 2,653 MW or 40% lower than the prior day’s peak.  Note the different vertical scale on the graph below.

The story was similar in the Baltimore area.  Demand in the BGE Zone peaked at 6,852 MW during Friday, 6-29-12.  The storm hit the area around 22:30, after which demand plummeted over the course of about an hour from about 6,000 MW to about 3,400 MW.

The following day, demand in the BGE Zone peaked at only 4,291 MW.

The table below summarizes peak demand before and after the storm.  On Friday, 6-29-12, prior to the storm, peak demand in PJM was 147,183 MW.  The following day peak demand was 120,024 MW, a more than 18% decline.  However, it is important to note that there are factors other than the storm related outages that influenced the decline in peak demand, most notably the day of the week.  6-30-12 (the day after the storm) was a Saturday, and on weekends commercial load is generally lower.  In fact, the “day ahead” peak demand forecast for 6-30-12 (made before the storm hit) was 135,065 MW.  This is a more realistic reference from which to measure how much load in PJM was still offline 18 hours after the storm.  By this reference, load was off by 15,040 MW, or a substantial 11%.  The level of load reduction in the Pepco and BGE zones was much more significant.

The graph below shows locational marginal prices ($/MWh) over the course of the day of Friday, 6-29-12.  Prices peaked at $280/MWh during the late afternoon and remained volatile during much of the evening.  When the storm hit the major East Coast load centers at about 22:30, LMPs briefly sank to $0, recovered, and then diverged significantly as midnight approached.  LMPs in the Pepco Zone went negative as there was more supply than the now greatly diminished load.  Negative LMPs in a congested zone, such as the Pepco Zone, is a highly unusual phenomenon and is an indicator of how rapid and extensive the damage was during the storm.

The graph below shows a close up of this significant divergence:

Before June 29, few of us were familiar with the term “derecho.”  Now we know what one looks like.

Notes:

– “PJM” refers to the PJM Interconnection, which is a Regional Transmission Organization and operates the electric transmission system serving all or parts of Pennsylvania, New Jersey, Maryland, Delaware, the District of Columbia, Illinois, Indiana, Kentucky, Michigan, North Carolina, Ohio, Tennessee, Virginia, and West Virginia.

– Data and maps from PJM.

The Avalon Advantage – Visit our website at www.avalonenergy.us, call us at 888-484- 8096, or email us at jmcdonnell@avalonenergy.us.

Copyright 2012 by Avalon Energy® Services LLC