Yes Energy's Year in Review - Power Market Trends that Drove 2021
by Gaby Flores on Dec 22, 2021
As we near the end of another year, let’s look back on the major trends that affected nodal power markets and the energy industry in 2021. Yes Energy’s Market Monitoring team, who monitor changes to every single ISO, compiled the most significant trends they’ve seen this year. Reliability and resource adequacy amid extreme weather events was the number one trend we saw this year. We’ve also seen political forces impacting markets and regulatory changes. Additionally, ISOs added many new products, and datasets continue to expand. Read more on these trends, and their drivers below!
Reliability and Resource Adequacy Amid Extreme Weather Events
Winter Storm Uri
The year started off with a bang when Winter Storm Uri swept across the United States in February. Multiple ISOs were significantly impacted, and the effects were devastating. Prices spiked in SPP, MISO, and ERCOT. SPP experienced a $50,000 real-time scarcity price, although this was later corrected and reduced. ERCOT hit its $9,000/MWhr cap for several days, leaving some Texans with unusually extreme power bills, and bankrupting several power providers, like Griddy. Some citizens in Texas were left without power for several days, and the human toll was staggering. As a result, there has been an increased focus on reliability in ISOs across the country.
Throughout the year, the Texas government and ERCOT have been working through solutions to the reliability challenges they experienced in February. Currently, they are working on solving for resource adequacy by ensuring that their existing generation sources will be available when needed. State Bill 3 will require generators to make a concerted effort to weatherize critical asset components, including sensors, so that operation is feasible during cold weather events. ERCOT will inspect and issue up to $1 million fines to those who fail to meet weatherization requirements. However, natural gas is being held to a different standard. Some generation sources were curtailed by an absence of fuel, particularly natural gas. Generators were not the only ones who lacked the proper weatherization to withstand winter conditions, the natural gas system was also not weatherized. A whopping 20% of plant outages were caused by a shortage of natural gas. However, the Texas Railroad Commission, the group responsible for the governance of the natural gas industry in Texas, initially left loopholes in their proposal which would allow gas companies to opt-out of weatherization. The Railroad Commission did receive some pushback, and now it seems an opt-out will only apply to non-critical resources.
The PUC has also created requirements intended to ensure improved coordination between utilities and gas facilities in emergency situations. Changes to ERCOT’s market design have also been proposed. Including changes around the execution of ORDC adders both in MW thresholds and by reducing the High System-Wide Offer Cap, previously $9,000 per megawatt-hour to $5,000 per megawatt-hour. This was likely to prevent future bankruptcies like those seen following the February storm. However, it will be interesting to see if this change will ultimately stifle investment and hurt ERCOT’s ability to provide reliable electricity at all times. These proposed changes are also meant to incentivize generators before the system drops to a critical level, hopefully resulting in better preparation and increased reliability during shortages.
CAISO, a Different Reliability Dilemma
Over the past few years, CAISO has faced its own unique reliability challenges. With a high penetration of renewable resources, they have struggled to meet increased demand during peak hours of the summer. Wildfires have also impacted the availability of power for California residents. While ERCOT is focused on ensuring reliability during unusually cold weather, CAISO is having to strategize on its ability to provide reliable power during increasingly common periods of hot weather. One of the primary ways CAISO is addressing this issue is by implementing more aggressive energy efficiency programs. Customers who conserve power as part of the emergency load reduction program will be compensated at a rate of $2 per kilowatt-hour, doubling the previous incentive. Additionally, CAISO is bringing large amounts of utility-scale storage onto the grid, with 270 MW of new storage to be online by the Summer of 2022 from PG&E alone. Next summer we may well find out if storage will be the magic bullet some have been hoping for, and the answer to California’s woes.
NYISO - Making Bets on Hybrid Facilities
NYISO has also seen a significant increase in renewable resources and faced with the reality of intermittency, they are betting on hybrid participation. The NYISO will be financially incentivizing market participants that have intermittent resources paired with storage resources at a single injection node so that they are able to react to market signals and dispatch accordingly.
Political Forces Impact Market Policies and Regulatory Changes
As we delve into the political happenings that have shaped the regulatory landscape this year, let’s look back at a moment of levity. House Democrats launched the Hot FERC Summer campaign over the summer to bring attention to the organization that may be critical to climate and clean energy policy. Check the video out here. Hot FERC Summer aside, political forces most certainly impacted the energy industry as a whole, and power markets individually throughout the year.
A New Administration
Since Biden took office in January, we’ve seen a shift in energy policy. There has been an increasing focus on hitting clean energy targets, and Biden made some strongly worded promises at the COP26 conference in Scotland. Biden is also cracking down on cybersecurity. He signed an executive order to mandate zero trust architecture and multi-factor authentication on all Federal networks. Forming a central Cybersecurity Review Board is also in the talks.
Since Storm Uri, many of the changes in ERCOT have been a result of political forces. ERCOT’s leadership is now appointed by the Texas government, and currently, the state’s top politicians have influence over its Board. The Governor of Texas and the Lieutenant Governor now appoint the leaders of ERCOT and the Governor appoints the PUC. Additionally, as mentioned above, while the gas industry also faced challenges with winterization, they got off relatively easily. Some speculate that this is due to the fact that they have significant political sway in the state of Texas. Three members of the Texas Railroad Commission received more than 60% of their campaign money from big oil and gas. And while ERCOT and other ISO’s mission is to provide reliable power at a reasonable price, the Railroad Commission is dedicated to making oil and gas as profitable as possible. Some experts speculate that there may be different standards for different types of energy providers in Texas.
CAISO EDAM & Western Imbalance Markets
This year we have also seen some changes to governance and market structure on the West Coast. The CAISO Board of Governors has adopted recommendations to replace the Western Energy Imbalance’s (EIM’s) ‘primary authority’ model, with a ‘joint authority’ model. This change in regional governance will give the CAISO Board of Governors the opportunity to work jointly with the Western EIM Board of Governors to meet and consider proposed EIM rules and EIM tariff changes.
This year CAISO further developed their Extended Day-Ahead Market enhancement (EDAM) in the WEIM, extending participation to a day ahead market framework for entities in the Western EIM region. The EDAM does not require full integration into the CAISO balancing area and will be modeled after the existing EIM approach to the real-time market. The EDAM is intended to improve market efficiency, integrating renewable resources into a DA unit commitment and scheduling framework across a larger footprint, for more entities.
Southeastern Energy Market (SEEM)
The South Eastern Energy Market (SEEM), an item of contention, was voted in due to a 2-2 deadlock in the FERC. Because the SEEM agreement was entered into operation by default as opposed to by commission order, it did not include many modifications that opposing groups called for. While those modifications will not take place, the main member groups have indicated that they will follow FERC transparency practices, but will not release much of their data publicly. The SEEM market is expected to go live in Q3 or Q4 of 2022 (SEEM annual meeting 12/21/21).
Generation Mix Changes
This year, partly as a result of the new Presidential administration and the global focus on reducing the implications of a changing climate, renewable generation, and utility-scale batteries are on the rise. Battery storage facilities broke records this year, and many hope that in conjunction with wind and solar, we will have solved the intermittency issues brought about by renewables. However, some question whether batteries and renewables will be able to replace the vast quantities of gas and coal power plants we rely upon. Nuclear energy is emerging as another solution to the clean energy problem.
Additional ISO Data Products & MORE Data
This year, we have also seen an increase in ISO datasets. MISO, ERCOT, SPP, and CAISO have all created additional products to solve for resource adequacy and reliability. In reaction to the GreenHat default, PJM plans to update their current FTR/ARR Manual, adding weekday peak hours, weekend peak hours, and everyday off-peak hours. ISO datasets also continue to expand based on renewable participation.
2021 has been an exciting year in the energy industry, and North American power markets. Yes Energy is excited to continue to support the energy industry, and its increasing amounts of data, so that industry professionals and businesses can make the best decisions possible going into the future. Look out for our 2022 trends to watch in the New Year!
To read more about these topics, check out our blogs from 2021. For further insights delivered straight to your inbox in the New Year, subscribe to our blog!
Yes Energy Market Monitors
Yes Energy’s Market Monitoring Team is dedicated to monitoring all of the ISOs and keeping a pulse on the latest industry news likely to impact our customers.
Our Market Monitoring Team is led by Kim Chrislip. Team members are Nick Reinhardt, Roy Chowdhury, and Grant Watson.