US power landscape prepares for markets, demand to heat up with summer
Summer for the power markets typically means volatility as demand shoots up with hot weather and prices bounce around as generators and traders try to provide the energy where it is needed.
Before each summer, grid operators across the United States gear up for the season by letting the stakeholders know how they are preparing in their summer outlooks. The outlooks share what the grid operators are expecting for peak loads and how much generation capacity will be available to meet the demand. For the power markets, preparing for the season means getting a handle on these outlooks and where prices are ahead of summer.
This year, some of the markets are seeing downward pressure on prices as the weak natural gas environment has been weighing on power.
Other markets, such as those in the West, are seeing shifting dynamics as the region deals with drought and a changing energy mix.
The nation’s largest grid operator, the PJM Interconnection, said in its 2015 summer outlook it was projecting a peak demand of 155,544 MW and a reserve margin of 20.8%, compared with 2014’s outlook that called for a peak 157,279 MW and a reserve margin of 25.4%. While the reserve margin is lower than last year, it is not surprising given all the retirements that have occurred in the PJM territory.
Looking at how PJM West summer prices are shaping up ahead of summer, one can see that prices are hitting some of their lowest levels of the year, largely because of the weak gas markets (more about that below) after being relatively flat most of the year and seeing some peaks last month.