The electric power sector is facing a time of growing uncertainty over everything from the Clean Power Plan, to increasingly volatile markets that are vulnerable to transmission constraints.
These were a few of the takeaways from the half-day GenForum event Aug. 23 in Columbus, Ohio. GenForum was co-located with the PennWell POWER-GEN/Natural Gas Conference.
American Electric Power (NYSE:AEP) Vice President Mark McCullough said although overall “average” energy demand is flat or declining in much of the nation, peak demand is another issue altogether.
“We also have to recognize that peak demand must be met.” The challenge is to do that without overbuilding, McCullough said.
”We [as electric utilities] are not called to just meet the average,” McCullough said. AEP must meet demand “on the hottest day and on the coldest day,” he added.
Customers still need 24/7 generation that can be dispatched, McCullough said. Natural gas power plants are attractive assets – but they lack the fuel certainty during weather extremes provided by baseload coal and nuclear plants, McCullough said.
Many organized markets have been “flooded” with new natural gas-fueled generating capacity, but there has been little demand growth, and this has, so far, kept energy prices low, said Thomas Graves, Business Development Manager, at Burns & McDonnell.
Combined-cycle gas plants are being built largely because of cheap capital. Some power generators in these markets are hoping to recover their fixed costs through a combination of capacity and energy market revenue.
“What we see … is there is actually a need for more peaking capacity,” Graves said. Burns & McDonnell has done some research on the economics of “dual fuel” capability within the PJM market, Graves said.
The problem is often logistics. Realistically, companies don’t want invest large amounts of money in keeping fuel oil on-site, Graves said. It’s an expensive proposition, he added. “A big peaker will burn three one, two, three trucks an hour” of fuel oil during a harsh winter cold snap.
Markets currently don’t offer adequate incentives for peaking power, Graves said. “In the next five or six years, we are going to start seeing more volatility on capacity,” Graves said.
This will be driven by constraints on the electric transmission and natural gas transmission infrastructure networks. Big electric utilities are already starting to see increased volatility in transmission and distribution, Graves said.
“Pricing volatility is increasing across markets,” said Joe Ferrari, Business Development Manager, at Wärtsilä North America.
Ferrari talked about day ahead and real time pricing, the difficulty in predicting output from wind power, and general price volatility issues. Market prices appear to be growing more volatile in “real time,” Ferrari said.
Ferrari believes that small, flexible internal combustion engines made by Wärtsilä can increasingly be valuable in real time markets. These battery-like generating units can start in only two-to-five minute and are capable of jumping in/out of 5-minute real time markets, Ferrari said.
“Some real-time markets will be changing soon,” Ferrari said. Federal Energy Regulatory Commission (FERC) Order 825 requires independent system operators (ISOs) with five-minute real-time markets to settle in real time,” Ferrari said.
Ferrari hopes this will move markets like the Midcontinent ISO (MISO), ISO New England (ISO NE) and PJM to better compensate assets with the greatest flexibility.