Polar vortex provides worrisome lesson on reliability, ICF says

ICF International (NASDAQ:ICFI) believes the recent snap of bitter cold weather raises some troubling questions about grid reliability in the wintertime.

The North American cold wave during early January was deemed the “polar vortex” in the popular media. Arctic air during the period had a dramatic impact on spot prices for power and natural gas on Jan. 3, 6 and 7.

In a white paper released Jan. 14, the consulting firm said that the high spot prices for electricity and natural gas were driven primarily by high demand. Things could have been worse if more fuel supply or power generation resources had been unavailable, ICF said.

“To the outside observer, the grid performed adequately during the polar vortex. But a more detailed look shows that grid reliability is a growing problem in many areas,” ICF said in the analysis led by Judah Rose and Shanthi Muthiah.

Most reliability activities in the power sector are focused on maintaining grid reliability during the summer peak, ICF noted. This is because summer peak demand in the United States has historically been higher than winter peak demand. In addition, there has been a trend to rely on summer-only resources.

“Reliability during the winter peak is, however, extremely critical in order to maintain home heating and public health and safety. This, combined with the recent cold snap, should lead to a review of the robustness of reliability rules in light of the actual experience of the winter of 2014.”

Natural gas prices in New England and eastern New York reached record highs on Jan. 7, with midpoint prices ranging from $35 to $40 per mmBtu and bids as high as $100 per mmBtu, ICF said.

“While there are unconfirmed reports of some wellhead freeze-off in the Marcellus area and the Texas Eastern Transmission compressor station in Pennsylvania was out of service for a portion of the day, there appear to have been no major gas supply disruptions during the cold snap; in other words, the high prices at New England and eastern New York hubs were due to high demand and pipeline constraints, not an interruption of upstream gas supplies,” ICF said.

In many markets the increase in delivered natural gas prices contributed to higher power prices. The principal exception, however, was the Electric Reliability Council of Texas (ERCOT). There gas prices did not increase while power prices increased dramatically, ICF said.

ERCOT has had low reserve margins relative to other markets and concerns about resource adequacy since 2011, ICF said.

Generally, many independent system operators (ISOs) experienced high levels of forced outages on Jan. 6 and 7, ICF said. Additionally, winter peak demand hit records or near-records in all eastern ISOs.

Many ISOs were forced to issue emergency alerts and call reserves or reduce voltage. “This raises the question as to whether the system operated reasonably well under extreme circumstances,” ICF said.

It’s also possible that changes in the resource mix with coal retirements, increased reliance on natural gas, increased reliance on summer-only resources and increased penetration of intermittent supply, combined with market changes, “may be inadvertently compromising grid reliability and/or resulting in very high prices that might be avoided,” ICF said.

“We believe this question can be answered only with detailed forensic evaluation and this activity should be undertaken in the near-term,” ICF said.

The white paper is titled “Polar Vortex Energy Pricing Implications—Commercial Opportunities and System Reliability.”

About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.