Coal takes the lead in organized markets after cold snap, but dominance won't last long
The cold weather that blanketed much of the Northeast and Midwest this past week has been a boon for coal, but it may not alter the underlying fundamentals for coal-fired generation.
The cold weather pushed natural gas prices higher, resulting in a reversal in the generation mix in the PJM Interconnection with coal taking the lead and gas-fired generation falling into second place.
- In New England, the cold weather also led to a reduction in gas-fired generation as the fuel was shunted for use for heating and oil and diesel fuel replaced gas at power plants.
The recent cold weather exceeded the low temperatures experienced during the polar vortex in 2014, but the grid across the Midwest and Northeast functioned with few problems.
The most notable disruption was the outage of Entergy’s Pilgrim nuclear plant in Plymouth, Mass., but the grid operator, ISO New England, was able to fill in with supplies from other generators.
The most notable effect of the cold weather on energy supplies was a steep increase in prices for natural gas. The U.S. Energy Information Administration reported that estimated U.S. natural gas demand reached a peak of 150.7 billion cubic feet (bcf) on Jan. 1, surpassing the previous single-day record set in 2014. That high demand raised prices, with gas hitting a record $82.75 per million British thermal units (MMBTU) in New England and $140.25/MMBTU in New York, according to Reuters.
With the cold weather receding, next day gas prices have also pulled back, dropping to $20.25/MMBTU in New England and $12.65/MMBTU in New York. That is still high – next day prices averaged $3.80/MMBTU in New England and $3.08/MMBTU in New York in 2017 – but nowhere near the recent peaks.
When fuel prices rise, generators that can turn to other fuels. In New York and New England, that means oil or diesel. Because natural gas is used for heating in those regions, generators have equipped their plants to be able to switch fuels, which is what happened.
During the cold weather that dropped to about 24% while oil rose to about 35%. In 2017, ISO New England’s fuel mix was 45% natural gas and 23% oil. Coal plants have become scarce in New England, representing about 3% of capacity in 2017 down from 12% in 2000.
In New York, dual fuel plants accounted for about 33% of supplies with gas supplying 14%, nuclear 26% and coal about
In PJM, a market usually dominated by gas-fired generation, high prices pushed natural gas down in the dispatch stack and made coal-fired generation more attractive. Coal-fired generation provided nearly 40% of PJM power supplies and natural gas about 21% on Monday.
Coal generators buy coal in advance, so there were able to draw on stockpiled supplies. Gas generators, on the other hand, are more at the mercy of natural gas spot prices because they are reluctant to lock in long-term gas supply contracts.
The cold weather resulted in two of the RTO’s top 10 winter demand peaks. But there were no “significant problems,” spokesman Ray Dotter told Utility Dive. “We are seeing some of the benefits” of the capacity performance product put in place after the polar vortex, he said, adding that weatherized plants have been available and are not forced out of service as they were in the 2015 polar vortex.
The cold weather was just beginning to recede just as the Federal Energy Regulatory Commission (FERC) voted not to take action on the Department of Energy’s request to find a mechanism to compensate baseload generators such as coal and nuclear plants. Some observers had thought the cold weather would be the perfect example to underscore the need to provide greater incentives for those plants.
The point the cold weather really makes is that “resiliency is about transmission and distribution lines,” Rob Gramlich, founder and president of Grid Strategies LLC, told Utility Dive. Any of the outages that occurred during the cold snap – such as the outage of the Pilgrim nuclear plant – were the result of damage to T&D lines, he said. The cold weather showed that coal and nuclear plants are not immune to the effects of cold weather, Gramlich said.
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