Grid Braces For Hot Summer Forecast, High Energy Demand

Although the summer has gotten off to a chilly start, you’ll be cranking up the air conditioning soon enough.

Temperatures this summer are expected to be higher than normal across most of the country, according to The Weather Channel. Fortunately, major electricity markets appear to have sufficient resources to meet the higher energy demand. Every spring, independent system operators (ISOs) release seasonal market assessments that detail forecasted loads, electricity capacity, and reserve margins for the coming summer. (A reserve margin is the amount of excess electricity available to meet peak load in case of higher than expected usage or unexpected power plant outages.) This year’s summer assessments show sufficient generation, but each system operator will face unique challenges in maintaining the reliability of its grid because of regional differences in weather, generation mix, load growth, and fuel availability. Below is a summary of what energy buyers can expect this summer across the major U.S. electricity markets. (Image credit: FERC)

PJM (Mid-Atlantic) 

According to PJM’s 2016 Summer Outlook, electricity demand across the Northeast region and portions of the Midwest, including Ohio, is forecasted to peak at 152,131 megawatts this summer. (To put that into perspective, 1 MW is enough electricity to power about 800-1,000 homes.) This is about six percent higher than last summer’s peak of 143,496 MW that occurred on July 28, 2015, but still well below the current record of nearly 166,000 MW set in 2006.   If this summer comes in hotter than expected, PJM projects to have more than sufficient capacity to meet the demand of the 61 million consumers within its footprint. Presently, PJM has 183,912 MW of installed generation capacity along with more than 8,700 MW of demand response available to meet the demand. Demand response is a voluntary program that compensates customers for agreeing to reduce their electricity use during times of high demand, when the reliability of the grid is threatened. 

This represents a reserve margin of 28.3 percent, which is well above the required 16.4 percent.   Improvements made in the past year add to PJM’s confidence it will have ample resources to meet this summer’s energy demands. This summer will be the first to include capacity resources that follow PJM’s Capacity Performance standards. These standards were implemented to ensure additional generation resources are available for service when PJM calls on them, especially during times of emergency system conditions. In addition, PJM has made a number of enhancements to improve electricity transmission across its system since last summer, such as adding a new 230 kV transmission line and several new substations. 

MISO (Midcontinent) 

The Midcontinent Independent System Operator (MISO) powers 15 states from Michigan and Indiana extending to parts of Montana. It projects it will have adequate generation available to meet summer demand. 

Expectations for warmer than average weather and a rash of generation retirements over the past few years have tightened reserve margins. System conditions this summer will leave the MISO grid with a projected reserve margin of 18.2 percent, just slightly above the 15.2 percent minimum reserve margin mandated by the North American Electric Reliability Council (NERC). MISO anticipates having 148,800 MW of capacity available to meet a peak load of 125,900 MW. In summer 2015, load on the MISO grid peaked at 120,000 MW on July 28. If extreme heat or unexpected unit outages lower the reserve margin to critical levels, MISO expects it may have to rely on seldom used, emergency-only generators to ensure reliability. 

MISO is also holding six summer readiness drills with market participants to test emergency system protocols ahead of summer. The reserve margin in MISO could shrink further in coming years given recently announced and proposed coal-fired power plant retirements in Michigan and downstate Illinois. 

NYISO (New York) 

NYISO has not yet released its Summer Reliability Outlook, although the preliminary operating study shows the New York power system will have adequate resources needed to meet summer demand – in accordance with NYISO system operating procedures and the State Reliability Council’s rules for planning and operating the grid. 

The forecasted peak load for the summer 2016 period is 33,360 MW, approximately 0.62 percent lower than last year and 1.76 percent lower than the all-time peak of July 2013.  The installed capacity requirement (IRM) for the 2016 capability year is 17.5 percent, which translates to 39,198 MW of total generation.  NYISO total summer capacity generation is 38,353 MW, and external purchases have been secured to meet the residual 1,769 MW needed. That gives the NYISO a 20.8 percent reserve margin above the projected summer demand, while accounting for a 4.8 percent equivalent forced outage rate for all NYISO generation.

ISO-NE (New England)

New England is expected to have the electricity resources it needs to meet summer demand under normal weather and system conditions. 

However, construction work on ISO-NE’s natural gas pipeline infrastructure will limit delivery of natural gas to some power plants, requiring them to obtain fuel from different sources. In recent years, New England’s power plants have become heavily reliant on natural gas, with natural gas fueling nearly half the total generation for the region.

If all New England resources operate at full output, ISO-NE could generate approximately 30,247 MW of power.  Close to 29,734 MW of generating resources are already committed to be available this summer through New England’s forward capacity market.  This summer’s peak electricity demand is forecast to reach 26,704 MW under normal weather conditions of 90 °F, giving ISO-NE a projected summer peak reserve margin of 18 percent.   Extended extreme weather of 94 °F or higher could push demand up to 29,042 MW, which would still fall within schedule capacity resource availability. 

In addition, the ISO has emergency operating procedures in place to maintain grid reliability in the event of unexpected outages or increased demand.

ERCOT (Texas) 

On May 3, the Electric Reliability Council of Texas (ERCOT) released its final summer 2016 Seasonal Assessment of Resource Adequacy (SARA) for June – September. ERCOT expects to have sufficient generating capacity to serve peak demands given “expected weather conditions,” which are forecast to be within normal temperature ranges for Texas. Peak load in the region is forecast to reach 70,588 MW, which would exceed the record load of 69,877 MW set last year on August 10.

To meet this load, ERCOT projects its generation resources will total 78,434 MW, including 736 MW of new thermal generation capacity scheduled to be on-line by this summer. ERCOT expects generation reserve margins to be approximately 11 percent this summer but did cite potential risks associated with extreme weather, higher than expected generation outages, and low wind conditions.

“We expect to have enough generation available to serve consumer needs this summer, based on the current forecast,” ERCOT’s Director of System Planning Warren Lasher stated in the SARA press release. “However, hotter-than-normal weather combined with low-wind conditions or high generation outage rates could cause operating reserves to drop below target levels, making it necessary to take additional actions to maintain grid reliability.”

CAISO (California) 

The California Independent System Operator has yet to issue its official 2016 Summer Load and Resources Assessment, but CAISO provided a summary of its expectations of operating conditions in a preliminary briefing.

CAISO expects load to peak at 47,529 MW, which is 0.8 percent above the 2015 weather normalized peak demand of 47,167 MW. Based on available in-state generation resources, the system operating reserve margin this summer is projected to be 24.4 percent, significantly higher than the California Public Utility Commission’s mandated 15 percent reserve margin requirement for resource adequacy.

CAISO has added 2,300 MW of new generation to its footprint since June 2015, of which 85 percent is solar, 6 percent is natural gas, 4 percent is wind, and 4 percent is hydro. Reliability in the state is also expected to be aided by a return to near-normal hydroelectric conditions in spring and summer 2016, although early snowmelt in the Pacific Northwest could lead to challenges for hydro resources if the second half of summer proves to be hotter than normal. The largest risk to reliability in the region, which was not included in the CAISO’s preliminary assessment, is the loss of the Aliso Canyon gas storage facility, which serves 17 gas-fired power plants in the Los Angeles Basin, representing about 9,500 MW of capacity.

What Can Business Owners Do To Reduce Summer Energy Costs?

Just as grid operators are preparing for hotter temperatures and higher demand, facilities managers should do their part to keep their business energy costs in check. Taking steps as simple as using fans, changing your air filter and installing programmable thermostats can make a big difference.

For more information about products and strategies that can help protect your energy budget against potential summer price volatility, contact your Constellation Business Development Manager today.