Ask the Experts: Is Hurricane Season Over? How Does Wind Power Impact Energy Prices in ERCOT?
In our monthly Energy Market Intel Webinar series, we offer our customers the opportunity to submit questions to learn more about the energy market trends that may affect their future contracting decisions, such as weather, gas storage and production, and domestic and global economic conditions.
Most recently, customers requested further information on events that could impact their businesses in certain regions of the country during our October webinar. Constellation’s team of market analysts and meteorologists addresses them here:
Will the news of the SoCal line 235-2 coming back online impact San Diego Gas & Electric (SGG&E)?
The return of natural gas pipeline 235-2 and now the soon-to-be Line 3000 operating at reduced pressure has put downward pressure on SoCal City Gate prices for this coming winter as more supply will be available. Both pipelines are returning to service after being out since 2016 and 2017. The repairs in SoCal’s northern zone, where Line 235-2 and Line 3000 are located, will increase supply from 2.5 Bcf/day to about 3 Bcf/day. This will put downward pressure on San Diego Gas & Electric (SDG&E) prices as more gas supply can flow south to SDG&E.
What is the impact of wind power on ERCOT?
The growth in installed wind capacity in ERCOT — from 10 GW in 2011 to approximately 25 GW – has increased swings in output of wind capacity. Overall, wind is highest in overnight hours and is at its lowest level in afternoon hours. As an example, wind output can vary over the course of a week, with the week of October 21-October 27, 2019 being an example. ERCOT experienced a low of 2,208 MW on October 21 at 1 p.m. and an afternoon high of 16,080 MW at 1 p.m. on October 25. It is the afternoon “valley” in wind production that generally needs to be covered by gas-fired generation, and this can lead to volatility in summer months when overall load is higher.
In summer months, minimum wind generation is critical because it occurs as load is approaching its peak level of the day, which is generally in late afternoon hours. The below chart from ERCOT illustrates what hours minimum wind output has occurred during June and August in 2018 and 2019. As 30-minute available generation reserves decline in ERCOT, especially when reserves decline below 4,000 MW, the presence or absence of several hundred MW of wind capacity can play a significant role in market pricing as the Operational Reserve Demand Curve (ORDC) adders begin to impact pricing.
ORDC Scarcity Pricing Adder
The ORDC adder will continue to reflect the cost of scarcity pricing in ERCOT in peak load periods, and customers should discuss their organization’s energy procurement needs with their Constellation representative.
If water temperatures are warmer, would that translate to a longer hurricane season?
Yes, warmer water temperatures in general do lead to a longer hurricane season. We currently have Hurricane Pablo petering out in the Atlantic, but warm water temperatures could give us one to two more named storms before the end of the 2019 hurricane season (May 20-November 30).
While water temperatures are a key factor in hurricane formation, there are other critical factors to consider as to whether they will reach land in the United States, and more specifically the Gulf Coast. These include wind shear (i.e., winds in the upper atmosphere), the jet stream and the Gulf Stream in the Atlantic Ocean. As the 2019 patterns have shown, most have been storms that have remained out at sea or that have sprouted up in the northern Gulf of Mexico and did not develop into major storms, such as Category 3-5 hurricanes.
Get access to more insights on the latest weather and market factors impacting your energy bill by attending our next Energy Market Intel Webinar.