FERC released the winter energy and reliability assessment report on Oct 20. Here are a few interesting findings directly from the report.
Weather:
Higher than average temperatures are expected for the coming winter in many regions of the country, which should translate into reduced natural gas and electric demand. The U.S. National Oceanic and Atmospheric Administration (NOAA) forecasts for December 2022 through February 2023 suggest a 50% to 80% likelihood of higher-than-average temperatures in Southern California, the Desert Southwest, Texas, and the Eastern Seaboard, with lower-than-average temperatures expected for the Northwest and the West North Central regions.
Winter 2022-2023 Temperature Forecast shown below.
Natural Gas:
Natural gas prices for the upcoming winter are expected to remain higher than recent years at major trading hubs across the U.S (Henry Hub natural gas futures contract price is averaging $6.82 per million British Thermal Units (MMBtu) for winter 2022-2023, up 30% from last winter’s settled price.
Even though natural gas production growth will likely outpace domestic natural gas demand growth in winter 2022-2023, forecasts anticipate that continued growth in net exports, including from liquified natural gas (LNG) export facilities, will place additional pressure on natural gas prices this winter.
Dry natural gas production is forecast to increase over the winter period by 3.2% above winter 2021-2022 levels, to 99.1 billion cubic feet per day (Bcfd) – reasons include high NG and crude oil prices.
Winter 2022-2023 demand for natural gas is expected to increase 2.4% over winter 2021-2022 levels to 121.2 Bcfd, driven primarily by growth in demand for natural gas exports (increase in LNG liquefaction capacity over the last year, as well as increased pipeline exports to Mexico).
2022-2023 withdrawal season, which is expected to take place from November to March, are forecast to total 2.0 trillion cubic feet (Tcf), 11.1% or 250 Bcf less than the 2021-2022 withdrawal season - partially offset the anticipated gains in production and contribute to continuing supply-demand tightness.
CAISO, ERCOT, SPP, MISO, and the Southeast are projected to experience a decline in the percentage of electricity generated from natural gas since winter 2021-2022. PJM’s share of generation output from natural gas is expected to increase to 40%.
Electricity Market and Reliability
The U.S. is expected to add 43 GW of net winter capacity from March 2022 through February 2023, with 15 GW of net winter capacity retiring over that period, according to EIA forecasts.
According to preliminary data from NERC, the planning reserve margins exceed the reference reserve level margins for the 13 NERC assessment areas. Overall, there appear to be sufficient resources to meet expected U.S. electric demand under normal winter conditions. Reserve margins do not necessarily account for extreme winter conditions that can lead to fuel unavailability for gas units, derates of intermittent resources, unexpected generating resource outages, transmission outages, reduced power transfers from adjacent areas, and delays in resources coming online that could affect a region’s ability to serve customers and maintain adequate operating reserves. Therefore, although all regions are expected to maintain adequate reserve margins through the winter, reserve margins do not guarantee reliable operations, especially during the winter.
New transmission lines and transmission upgrades will support operations this winter. Between March 2022 and March 2023, approximately 826 line-related transmission projects, representing nearly 6,700 line-miles, are scheduled to enter service in the U.S. portions of the Eastern and Western interconnections. PJM and MISO account for more than half of these line-related transmission projects.
Probabilistic Assessment/Risk Period Scenario:
In prior years, this winter assessment has relied extensively on reserve margins analysis to determine resource adequacy levels. However, areas can face energy shortfalls despite having planning reserve margins that exceed reference margin levels. Insufficient resources during different demand levels could include generator scheduled maintenance, forced outages due to a range of factors, and conditions that affect generation resource performance or unit availability, including constrained fuel supplies. As a result, NERC and the Regional Entities, also use a probabilistic risk analysis to assess the availability and sufficiency of resources to meet demand under normal operating conditions as well as multiple risk scenarios with a range of conditions. Probabilistic risk analysis assesses the potential variations in resources and load which can occur under changing conditions or scenarios, as well as the potential effects that operating actions can have in mitigating shortfalls in operating reserves.
The charts shown below are informally referred to as “waterfall charts” and step down to compare resources against levels of forecasted supply and demand, including required reserve levels, under chosen extreme scenarios, such as the normal peak net internal demand (50/50 scenario) and the extreme winter peak demand (90/10 scenario).
ISONE Risk Period Scenario
ERCOT Risk Period Scenario
MISO Risk Period Scenario
Coal Industry Issues and Responses from RTO’s
U.S. coal-fired power plants’ ability to get coal this winter may be affected by ongoing coal production and shipment issues. As of September 17, 2022, U.S. year-to-date coal production is 3.9% higher than last year. However, coal deliveries have been hampered by labor challenges, mine closures, and transportation limitations. An extended coal shortage for power generation could impact regions that continue to rely on coal-fired generation, such as the WECC region (excluding CAISO), SPP, MISO, PJM, ERCOT and the southeast region (SERC-E, SERC-SE, SERC-C, and SERC-FL). Most of these regions forecast coal at over 20% of their net winter capacity, with the non-CAISO WECC, Florida, and ERCOT at lower levels of coal-fired capacity
Response from RTO’s
- In MISO, which expects to have 27.9% of coal net winter capacity by October 2022, market participants will likely continue to adjust reference prices to allow fuel-constrained generators to run less often and maintain their existing stockpiles. MISO will also continue to implement weekly fuel survey requirements—a measure introduced last winter to better understand fuel positions, in light of warnings issued about coal supply issues and forced outages during cold fronts.
- Given power plant reports regarding coal delivery and low stockpile problems, SPP revised its Marketplace protocols to allow coal-fired generators to include opportunity costs in their energy bids to help manage coal stockpiles. SPP expects 23.2% of coal winter net capacity.
- PJM expects to have 21% of coal winter net capacity and is likely to continue to relax its threshold to move a generator into the Maximum Emergency category from 32 hours of fuel supply to 240 hours. A generator moved into this category could be restricted from operating unless required to meet reliability needs. This began as a temporary measure last year and is in the process of becoming a permanent change in PJM’s emergency operations manual, which does not require Commission approval.
Average Number of Days of Burn for Coal by Region (Electric Power Sector)
Conclusion
The operation of the electricity and natural gas systems this winter could be impacted by extreme weather and changing natural gas market fundamentals. Natural gas exports are forecast to continue growing, which will place upward pressure on natural gas demand this winter. However, growth in natural gas demand is not expected to outpace growth in production this winter.
Forecasts show electricity market operators will have sufficient capacity to maintain reliable operations this winter, under normal winter conditions. All regions anticipate adequate reserve margins, although extreme winter events may stress operations. Coal supply constraints may affect coal deliveries and coal stockpiles this winter across those regions that have relied on increased coal-fired dispatches during recent stress periods, including SPP, MISO, ERCOT, SERC and PJM. Finally, despite challenges associated with constrained natural gas import capacity, ISO-NE expects to maintain reliability this winter under mild and moderate winter conditions and has concluded it does not need a dedicated winter reliability program, unlike in past years.