Power outages on the ERCOT electric grid in Texas are currently widespread and life threatening. Millions are without power not because of downed lines, but because their electric grid wasn’t able to add extra power when it was needed. Why is this happening in Texas and can it happen behind our Ohio power grid PJM? How close are we to experiencing the same thing?
First we need to understand the difference between the two grids ERCOT and PJM. The ERCOT power grid in Texas is called an Independent System Operator (ISO) and is generally exempt from oversight and regulation by the Federal Energy Regulatory Commission (FERC). ERCOT administers transmission grids located solely within the state of Texas. ERCOT also relies principally upon energy prices to encourage development of new generation. Most index in ERCOT are on Real Time Index. ERCOT set the Real Time Index clearing prices yesterday to $9000/MWh. Daily index prices went from around $50/MWh to near 9000/MWh in 4 days as Power plants with a combined capacity of more than 34 gigawatts were forced offline on Monday, including nuclear reactors, coal and gas generators and wind farms. While renewable sources like solar and wind are great for lowering carbon emissions when an electric grid depends too much on them and extreme conditions shut down power from them through cloudy skies, freezing blades and freezing natural gas wells the grid and thereby the consumers can be left without enough electric supply during critical times. Plus, more than a million barrels a day of oil and 10 billion cubic feet of gas production are shut off and massive refineries have halted gasoline and diesel output. Natural gas prices are trading on a daily index around 500/MMBTU.
PJM on the other hand was designated a Regional Transmission Operator (RTO) by the FERC in 2001. FERC regulates PJM and approves its open access transmission tariff for the wholesale electricity market. In PJM’s capacity market, electricity generators get paid for promises to be available to supply power when called on to do so by the grid operator. There are financial penalties in place if they don’t perform when called upon for extra power. AEP OH and ATSI (First Energy) electric index Pricing, by comparison, is still in the $30/MWh range. In November 2020 PJM published a report stating that they were prepared to meet forecasted winter peak demand of 136,000 MW. The forecasted peak on 2/16/2021 for PJM is 110 MW. PJM plans for an even higher summer peak MW than in the winter when we see peak KW numbers often in the 140 MW – 150 MW.
It’s moments in time like this when we see great value in not only operating our businesses in Ohio, but having fixed rates that aren’t subject to daily price swings. While it’s true that some very large manufacturers buy a portion of their electric and natural gas on a daily index and also true that during periodic times in the year daily index prices are very attractive, the risk of prices rising to extremes is always present. Extreme weather is the primary cause for price volatility, but it seems more domestic and global events are bringing volatility to the energy markets as well.