In the News: Power Producers love heat waves

Yesterday, the East Coast of the U.S was hit with a major heat wave, and existing generators benefitted disproportionately from the resulting high energy prices. But this didn't have to happen, it only happens because a huge amount of renewable energy projects are held up waiting to connect to the grid.

Over the weekend, forecasts for the Washington D.C. area hit 100F. When temperatures rise, so does demand for energy, as millions of people and business crank on the AC. The result is predictable: over the weekend, the PJM interconnection¹ reported a shortage of generating capacity; on June 22, PJM announced a "Maximum generation alert" (which it repeated on Monday). A Maximum generation alert is just a warning that the entire market is short of generation, and that units which may otherwise have been shut off that day (for maintenance, for example) should try their best to go online instead. The next step after a maximum generation alert is to begin "forced curtailment"--that is, rolling blackouts.

PJM is a market, so a generation shortage in one area of the map (in this case, Virginia and West Virginia) is most obviously seen in the wholesale price of electricity in that area. On Monday morning, the price of energy in the D.C area was over 100$/MWH, and only 30$/MWH in Pennsylvania. This creates an obvious opportunity: If you can ship your power into the D.C. area, you stand to make a ton of money selling it. The inevitable result is the price of energy rising across the entire market, as all the power gets shipped from lower-demand to higher-demand areas. On Sunday evening, the prices across PJM were well over 500$/MWH. If you are a merchant power producer² that is currently active in the market, then you just straightforwardly made enormous revenues on Monday. Just boatloads of money shipped right to your door. But if you are a utility, with a responsibility to distribute power, you also have to buy your power off the market. If you are generating exactly what you need, it all comes out in the wash--any profit that you make selling generation into the market you lose when you have to buy energy back to distribute. But if you were, say, in Pennsylvania, and your demand was just a little bit lower than your capacity, then you also stand to make a lot of money on these high heat days.

It's worth taking a second to look at what actually makes up PJM's existing generation, so here's a nice little table for us:

There is more coal power online in PJM today than there is any form of renewable combined, and more than 4 times as much gas as coal.

Coincidentally, PJM has an "interconnection queue", which is the list of new power plants that are waiting to come into the system. New generation waits on this queue for a variety of reasons, some technical and some bureaucratic. But you can't start generating power in PJM without first going through their interconnection queue. And the wait time is long: generation waits an average of 18 months on the queue before it can be connected.

Coincidentally, there is a lot of solar power waiting in PJM's interconnection queue right now: 34 GW. There is almost as much solar power waiting in PJM's interconnection queue as there is coal power existing in the system. If that 34GW of solar power had been online during this heat wave, PJM would almost certainly avoid its generation shortage, and the resulting high prices.

But those high prices benefit the existing stakeholders in PJM. It's little wonder then, that those who hold them are reluctant to turn them off, and resistant to bringing anything new on.

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Notes

1. The PJM Interconnection is the largest power market in the United States, responsible for pretty much all power generators in the rust belt and the central Atlantic regions (including Pennsylvania, Ohio, West Virginia, Virginia, and Maryland).
2. That is, a company which owns a power plant or generator, but doesn't have to actually distribute electricity to end consumers.