Floods, Wind and Pestilence in the West. 2012-Style Energy Market Volatility.

This past week has been pretty exciting up in the Pacific Northwest (PNW) as above normal temperatures moved across the region, increasing the overall water flows to record highs for this time of year. As the weather has warmed, the snow is melting early; the water is getting to flood stage.  There is simply way too much water for the PNW hydropower generation system.   This development has big implications for current and future power prices.  But that’s not all that is going on.  The wind is blowing big-time.  That has wind generation near maxed out.  And compounding the complexity of the situation, all four western nuclear plants are off line (jellyfish in the system at one plant – the pestilence part).  If you like volatile energy markets, the western U.S. is the place to be.

Let’s start with the water and hydro.  (For background on this market, see Under Water and The Wild Wild West).    The water is here.  The hydro system operators have been jumping through hoops to minimize the risk of flooding.   Operations on the river have been putting maximum water through the hydrogenation system for some time along with Grand Coulee (largest US Hydro Storage Facility) releasing more water to make space for the future melt of the snowpack (called “drafting”, emptying of the storage facility).  With the warmer weather hitting the PNW last week they could not continue that operation for long because of the possibility of flooding downstream; hence moving from the preparation of flood control to actually being the flood control.  As of late last week, the reservoir started to refill just over 2 feet per 24 hour period.   This action was warranted due to downstream gauges being at flood control levels and the operators were taking actions necessary to keep Vancouver, WA from flooding.

You might think that all of this would make for a huge spike in hydropower.  But not really.  That is because the hydro generators were already at maximum capacity before the onset of the early snow melt.  Monday’s generation came in at 20.7 GW which was in line with output we saw late last week and over the weekend.  The next couple of days fluctuated between flat and down 300-400 mw.  Once Grand Coulee started to refill, this actually put less water on the system when there was still some generation capacity, thus actually lowering the overall generation output.  On the ‘run of river’ portion of the river any gallon spilled now is a gallon which will not be available to generate power later.

But there is something that is generating a lot of additional power right now.  And that is the wind.

Output began increasing with Thursday reaching close to the 4,000 MW level on that afternoon.  That is about 90% of capacity.  Usually this time of year you would expect about 30-40% of capacity.  With big wind and maximum hydro, the combined effect put downward pressure on power prices.  The overall Mid-Columbia (Mid-c) heavy load power prices towards the end of the week and into Monday settled in single digits.  Light load (evening prices) continue to be zero.  Yes, I mean $0.00. 

You might think that zero is bad, but here in the topsy-turvy PNW, zero is good.  That’s because there is a government mandated $30/MW subsidy for each megawatt of power generated from wind.  So that means that the wind generators are still making money even if they sell at NEGATIVE -$29/MW.  Since the power grid doesn’t need the wind power at night but that’s when the wind blows, prices can go negative.  So zero looks pretty good for off-peak power.

Finally we have the pestilence – bugs in the nukes  Or to be more accurate, jellyfish.  The two San Onofre Nuclear Generating Station (SONGS) units that we discussed in Wild Wild West are still offline.  And at the same time there was a jellyfish invasion at the Diablo Canyon Nuclear Plant Unit 2 midweek (I’m not making this up – click here) taking the plant off line.  Combine this with Diablo Canyon Unit 1’s planned maintenance; the state of California is nuclear free (making the residents of Berkeley happy since they have taken their stance of Nuclear Free within its city limits statewide for a few days).  Once the jellyfish are removed, Unit 2 will be back up in service.

The net-net result from all of this is that we have four nuclear plants off line but power prices have been relatively stable.  With other low heat rate units returning from maintenance and milder weather within the state, it seems that all these events are offsetting each other so we have not seen volatile prices – yet.   And one last point, it has meant that gas fired power generation in the Southwest is cranked up, with the result that west gas prices are very strong with PG&E Citygate at $2.30/MMbtu on Friday.

This has been the ‘Readers Digest’ version of the week in PNW.  If you want to go deeper, our weekly Energy GPS report for last week may be downloaded below.