PJM 2016 Summer Recap

This summer, PJM and much of the nation saw above average temperatures that increased demand to levels that we haven’t seen in a long time. PJM‘s initial summer 2016 outlook reported that the RTO (regional transmission organization) was thought to have adequate generation resources for the forecasted peak summer demand and did not foresee any transmission problems.

The projected reserve margin of 28.3 percent was likely to exceed the required reserve margin of 16.4 percent. Reserve margins are the expected cushion between forecasted demand and the generation free to come on-line to meet that demand. As a result, PJM was thought to have adequate resources to handle the demand heading into the summer.

Temperatures in Eastern PJM this summer have been well above average. They could potentially come in as the third warmest on record for Cooling Degree Days (CDD). CDDs measure demand based on temperature changes from the norm. You might think that elevated temperature levels plus rising gas prices might create the perfect storm for increased power index prices and greater volatility. However, despite all of these bullish factors, power prices have remained slightly above life-of-contract lows that were established earlier in the year.     

Data source: EarthStat

Peak load for the PJM grid reached its highest levels since 2013 at 153 GWs. This was due to the temperature impact on system demand. There were some key details about this summer.

First, power burns (gas demand needed to generate electricity) reached an all-time daily record of 41.9 Bcf/day. Second, there were below average storage injections for 14 straight weeks. We also saw the first summer gas withdrawal out of storage since 2006. Market upside has been limited for the most part. However, we saw some early support to forward pricing at the beginning of summer. Most eastern PJM forward pricing has been trending lower since late-June. Index prices have been lower year-over-year for most eastern PJM markets. The chart below shows index settlement prices from 2013 to the present.

The increase in power demand across the PJM grid during 2016 presented risks to overall energy costs due to the potential for increasing energy prices and higher capacity costs which are determined by a company’s usage during peak hours of the summer.

One way to manage these costs is with Constellation’s Peak Response program. The program is designed to help you manage risk of demand charges. The Peak Response program is put into action during the summer months, and can inform you of potential PJM high demand days. Peak load days will determine your capacity needs based on customer-specific usage for the highest peak hours of the summer. Most of the peaks may have already been set for this summer; however, there may still be an opportunity for a market participant to curtail their load into next month if warm conditions continue. The chart below shows PJM peak hours summer-to-date for potential demand days.

By managing usage down during the high demand periods, a company can potentially reduce their overall energy spend by lowering the usage factor that determines their capacity obligation portion of their energy costs.

If you’re interested in learning more about our Peak Response program or how these trends may impact your business, have a discussion with your Constellation representative today.