Falling short North America Outlook | October 2021 - POWER - North American Energy Markets ...
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POWER North America Outlook | October 2021 Falling short
Winter weather risks are paramount given how thinly balanced storage is
Lower 48 US storage Winter weather scenarios for end-March 2022 storage
bcf bcf
Five-year range 2021 Winter 2021-22 scenario End-March 2022 (bcf)
5,000
Five-year avg. 2020 Normal weather 1,625
4,000 Warmer scenarios
5% warmer-than-normal 1,980
3,000 10% warmer-than normal 2,335
Colder scenarios
2,000 5% colder-than-normal 1,270
10% colder-than normal 915
1,000
10% colder baseline change (710)
Res-com, power, and industrial (720)
0 Mexican exports demand 40
Jan Mar May Jul Sep Nov Jan US L48 production (80)
Canadian net imports 50
2022 prices will be highly sensitive to 2021-22 winter
An end-October carryout of 3.6 tcf will leave little cushion
weather given the potential for carryouts near 800 bcf or
against a strong Henry Hub response in a cold winter.
above 2.2 tcf under extreme scenarios.
Source: EIA, Bloomberg, Refinitiv, Energy Aspects
2 PowerAppalachia planned maintenance to weigh down total US October production
Total US production by basin Total US production forecast
bcf/d bcf/d
Oct 21
Basin Aug 21 Sep 21 Oct 21
(m/m)
Marcellus 27.88 27.68 27.92 0.23 ↑
Utica 5.77 5.80 5.78 (0.02) ↓
Permian 11.02 10.67 10.60 (0.06) ↓
Haynesville 11.13 11.32 11.41 0.09 ↑
South Texas 11.63 11.74 11.67 (0.07) ↓
Anadarko 5.99 6.32 6.53 0.21 ↑
DJ basin 4.96 4.93 4.94 0.00 ↑
Gulf of Mexico 2.00 1.18 1.98 0.80 ↑
Williston 2.06 2.19 2.12 (0.07) ↓
Other 10.28 10.64 9.20 (1.44) ↓
TOTAL 92.73 92.48 92.15 0.18 ↑
Appalachia maintenance expected to reduce total US October Haynesville, Permian basin to lead sequential winter production
production by 0.2 bcf/d m/m. growth of 1.2 bcf/d form current levels.
Source: Enverus, Ventyx, Energy Aspects
3 PowerUS LNG in the money by a wide margin
TTF and Henry Hub prices vs US LNG exports US LNG feedgas by terminal y/y
bcf/d; $/mmbtu bcf/d
US LNG exports, bcf/d (left) Sabine Pass Cove Point
12 $18 4
TTF M+2, $/mmbtu (right) Corpus Christi Cameron
Henry Hub cash, $/mmbtu (right) $16 Elba Island Freeport
10 3
$14 Calcasieu Pass
8 $12 2
$10
6 1
$8
4 $6 0
$4
2
$2 (1)
0 $0
(2)
Feb 20 May 20 Aug 20 Nov 20 Feb 21 May 21 Aug 21
Oct 21 Jan 22 Apr 22 Jul 22 Oct 22
Sabine Pass train six will begin commercial operations in
Record prices for TTF winter contracts all but assure the lack
January, while Calcasieu Pass’s initial trains will likely be later in
of financial incentive to stop US LNG exports to Europe. Q1 22.
Note: TTF M+2 taken from the 20th day of the month.
Source: AGSI GIE, Bloomberg, Ventyx, Refinitiv, Energy Aspects
4 PowerAs coal generation displaces gas this winter, coal stockpiles in danger of depletion
Gas share of thermal generation vs prices Coal inventories
%, $/mmbtu Days of forward supply
Past month 2021 W21-22
7.0 180
2020 2019 2018 US PJM
6.0 160
140
5.0
120
4.0
100
3.0 80
60
2.0
40
1.0
20
0.0 0
40% 45% 50% 55% 60% 65% 70% 75% 80% Jan 19 Jul 19 Jan 20 Jul 20 Jan 21 Jul 21 Jan 22
We forecast gas share of coal and gas generation to be at its Stocks will be near one month of forward supply by the end of
lowest point since Q1 18, leading to a large uptick y/y in coal 2021, posing risks of widespread inventory depletion in the
generation, and therefore tightening coal inventories. event of a cold winter, with some plants already running dry.
Source: EIA, Bloomberg, Energy Aspects
5 PowerWinter fuel stockpile concerns off to a fast start
Coal inventories by ISO, y/y ▪ Short-term PJM prices have been lifted by high generator outages and from
% coal and gas prices more than doubling y/y. Outages for both planned work
and the need to protect coal stockpiles ahead of the winter peak are also
raising October heat rates in line with our forecast.
▪ Concerns about the lack of coal and other fuels during the winter peak (as gas
supplies enter the heating season at a three-year low) led PJM to initiate a
0
weekly coal and oil stockpile survey from 11 October. We expect that lengthy
(10%) stretches of normal or below-normal temperatures would cause generators to
run dry, as some are entering the winter with very little coal on the ground.
(20%)
▪ With higher weather-normalised load y/y in PJM and much of the US as well as
(30%) potential shortfalls in generating fuels, peakers may be called upon more
often y/y. CTs are also increasingly setting the margin in PJM under new fast-
(40%) start (FS) rules, which took effect in September. The price uplift from FS was
$1.86/MWh across all hours last month, down from the summer peak.
(50%)
▪ The next energy market change would have been reserve pricing in May
(60%)
y/y vs 3-year average
2022, but that looks set to be delayed, as is the next capacity auction
(scheduled to be held in late January 2022 for the 2023–24 delivery year).
▪ Liquid fuel stocks are of greater concern in the Northeast as LNG availability
diminishes. Forward Jan-22–Feb-22 peak power at Mass Hub is nearing levels
Source: EIA, Energy Aspects
last seen during the early-2014 Polar Vortex winter.
6 PowerLower price caps likely in ERCOT, but peak summers, winters move higher
ERCOT Cal-22 spark, dark spreads ▪ ERCOT generators are also scrambling to ready themselves for Q1 22, the first
$/MWh winter peak since the widespread freeze-offs last February resulted in a week
of power outages. Several coal plants in Texas have already run short of coal
40 Sparks (CCGT) Darks Sparks (peaker) due to a lack of production response from the Powder River Basin and
ongoing railroad congestion. NRG Energy’s WA Parish noted its fuel shortfall
35 in outage reports with the ISO over the past month, following similar notices
30 from Vistra Energy’s Coleto Creek plant earlier in Q3 21.
25 ▪ The Public Utilities Commission of Texas (PUCT) will likely lower the price cap
20 to $4,500/MWh from $9,000/MWh by early November, as we had noted
last month. The reduced high system-wide offer cap is expected to be
15 implemented by January 2022, along with other changes to how the ISO sets
10 the operating reserve demand curve (ORDC). Increasing the number of times
the ORDC is hit would offset the lower price cap, which has been one of the
5
drivers of summer prices rallying in recent weeks.
0
▪ Both the ORDC and broader market reforms currently under review come as
(5)
generation owners must certify the steps they have taken to prepare for cold
Apr 20 Jul 20 Oct 20 Jan 21 Apr 21 Jul 21
weather by 1 December. Ongoing investment in coal and gas plants will
improve extreme weather performance, but the short timeline since February
and lack of an existing capacity revenue stream indicate such investments will
reduce but not eliminate generation performance risk this winter. This has
helped lift Jan-22–Feb-22 prices above $90/MWh, slightly above our view.
Source: Bloomberg, Energy Aspects
7 PowerPJM coal units idled to save fuel, leading ISO to begin monitoring inventories weekly
PJM dark spread vs coal generation PJM dark spread vs coal generation
$/MWh; GW GW (x-axis); $/MWh (y-axis)
2021 2020 2019 2018
35 Dark spread Generation 50
30
40
25
20 30
15
20
10
5 10
0
0
(5)
(10) (10)
1 Sep 8 Sep 15 Sep 22 Sep 29 Sep 6 Oct 0 10 20 30 40
Even with higher-cost coal units in the money this month, With higher dark spreads y/y not driving increased coal
total PJM coal generation remains lower y/y and versus generation, the ISO is now surveying plant fuel inventories
forecast as plants conserve fuel ahead of the winter peak. weekly through winter to ensure sufficient supplies.
Source: CME, ICE, Argus Media Group, Energy Aspects
8 PowerWith FS implementation and MOPR order, PJM targets new ORDC filing in Q1 22
PJM market reforms ▪ Market price uplift in line with expectations in September as fast-start pricing
implemented. Nearly all the uplift was concentrated during on-peak hours.
Initial Last/next ISO
PJM rulemaking Initiated Effective Notes ▪ FERC approved—by not taking action—PJM’s revamped minimum offer price
filing filing impact
rule (MOPR) on how resources offer into capacity markets. A more stringent
New EPSTF driving to MOPR is being replaced after only one auction during which it was in effect.
Energy price formation 15 Nov 17 2018 2022 N/A $3.50 fix ORDC.
Sept. price uplift
Fast-start resources 18 Apr 19 31 Aug 19 7 Jun 21 Sep 21 $1.75 averaged $1.68/MWh. ▪ Generators and other suppliers also must now apply an avoidable cost rate
On track for 1 Nov. (ACR) set by the market monitor (with the option to request a unit-specific
Five-minute pricing 31 Jul 20 Nov 21 start date. ACR) in their capacity offers. Given the increased time to review individual net
Modified MOPR
ACRs, PJM has asked to delay the 2023–24 BRA to late January 2022.
Capacity (RPM) 1 Jun 18 2 Oct 18 9 Sep 21 Jun 22 approved Sept. 2021.
ISO seeking clarity on
Market seller offer cap (MSOC) 10 Sep 21 EE, DR impact. ▪ Under a new Energy Price Formation Senior Task Force, PJM aims to adjust
Reserve price formation 1 Nov 17 29 Mar 19 6 Aug 20 May 22 $0.46-$1.96
ISO aims for FERC reserve pricing rules before they go into affect in May 2022. In addition to
order by May 2022.
modifying the operating reserve demand curve (ORDC), the group is
considering “circuit breakers” to prevent prices from staying too high too
Carbon pricing 3 Jul 19 N/A N/A N/A
long and to avert other grid failures. Two scarcity events took place in
Storage (order 841) 15 Feb 18 1 Dec 18 Dec 19 minimal September, with five-minute prices peaking above $2,000/MWh, but the
new ORDC would cap out near $14,000/MWh under current rules.
▪ The expected nomination of a third Democrat to FERC would likely provide
Chairman Richard Glick more sway in advocating for lower prices.
Note: Italics are sub-components of larger items. Source: PJM, FERC, Energy Aspects
9 PowerPJM fast-start pricing added $1.58/MWh to real-time prices on average in September
PJM FS uplift on average prices PJM gas CT sparks vs load net of outages
$/MWh $/MWh; GW
May-Aug May-Aug Fast-start
9 150 Sep Sep Fast-start
8 140
7 130
6 120
5 110
4 100
3 90
2 80
1 70
0 60
1 May 22 May 12 Jun 3 Jul 24 Jul 14 Aug 4 Sep 25 Sep (80) (60) (40) (20) 0 20 40 60
FS uplift on around-the-clock prices in PJM averaged Sparks for gas CTs in PJM—typically the marginal unit under
$1.58/MWh in September, below peak-summer months fast-start pricing—were uneconomic in September on
(~$2/MWh over June–August) but above $1.07 seen in May. average, but less so than without the new pricing regime.
Source: PJM, CME, Energy Aspects
10 PowerPJM 2023–24 capacity forecast lowered on reduced load, MOPR and MSOC updates
PJM capacity forecast PJM energy, capacity values by planning year
$/MW-d $/MWh
250 2023/24 2023/24 prior 2022/23 2021/22 40 Energy (Oct) Capacity (Oct)
35 Energy (May) Capacity (May)
196
200 30 11.7
166 25
24.0
150 140 140 20
15
95 98
8.0
95 96
100 10 11.7
8.8
70 70 70 70 69 8.8
65 5 8.3
7.1
50 50
50 0
(0.6) (3.6) 0.8 (4.9)
(5)
0 (10)
MAAC EMAAC RTO COMED 2021/22 2022/23 2023/24
Coal plants are more economic on a forward-looking basis than
PJM RTO capacity price forecast flat y/y compared to our prior
in mid-Q2 21, but increased energy revenues are not enough to
forecast for a modest y/y gain. MAAC will likely be lower y/y.
offset the loss of capacity payments from Q2 22 onward.
Source: CME, ICE, Argus Media Group, Energy Aspects
11 PowerRGGI closer to reality in Pennsylvania, although legislature may still block 2022 entry
Pennsylvania RGGI estimated timeline Carbon credits, indexed to July 2021
%; $/t (RGGI, RHS)
Pennsylvania RGGI rulemaking process
CA RGGI EUA RGGI ($/t)
140 13
DEP environmental quality board 15-
EQB approves final rule 13 Jul 21
4 vote.
20 days to review; can be extended 12
Legislative standing committees Q3 21
by 14 days.
130
IRRC review 1 Sep 21 Approved in 3-2 vote. 11
Standing committees review Q4 21
14 days to pass disapproval 120 10
resolution, suspend rulemaking.
Legislature has 30 days (or 10
Senate, House concurrent resolution Q4 21
session days) to adopt.
110 9
No fixed timeline for Wolf to veto,
Governor veto opportunity Q4 21
which he likely would.
30 days (10 session days) to gain 2/3
8
Senate, House vote Q4 21
majority to override veto. 100
Attorney General Q4 21 No fixed timeline for AG to review.
7
Publication in PA Bulletin Q4 21/Q1 22 Becomes law, effective immediately. 90 6
20 Jul 3 Aug 17 Aug 31 Aug 14 Sep 28 Sep 12 Oct
Pennsylvania’s legislature—and potentially courts—are the Forecast higher coal/oil generation and overall load gains y/y
only remaining hurdles to it joining RGGI. An overall RGGI boost carbon credit demand in RGGI states. Speculative
programme review may tighten caps from 2023. interest has also spread from Europe and California to RGGI.
Source: State websites, RGGI, Bloomberg, ICE, Energy Aspects
12 PowerNYISO sparks indicate oil and imports will replace IP3’s retirement this winter
NY-G peak sparks vs output NYISO dispatch costs
MW; $/MWh $/MWh
CPV Valley Cricket Valley
60
50
40
30
20
10
0
(10)
(20)
(30)
0 200 400 600 800 1000
Higher output y/y from Cricket Valley could offset 0.2 GW of Rising Northeast gas basis makes diesel sparks economic in
the 1.1 GW downstate generation hole left by IP3’s retirement, zone G. Gas CCGTs are economic to flow to ISONE this winter,
with the remainder from imports and in-city units. and the zone J premium needs to widen to pull more into NYC.
Note: Using M3 as a proxy for Millennium gas (CPV Valley)
Source: EIA, ICE, Energy Aspects
13 PowerNYISO thermal stack to shrink from next year, lifting our capacity price forecast
NYISO net capacity changes NYISO capacity price forecast
MW $/MWh
EA-LHV ICE-LHV EA-ROS ICE-ROS
Coal Nuclear Gas Oil 16
1.5
14
1.0
12
0.5 10
0 8
6
(0.5)
4
(1.0)
2
(1.5) 0
2018 2019 2020 2021 2022 2023 Nov 21 Aug 22 May 23 Feb 24 Nov 24 Aug 25
Net thermal capacity will decline further at the end of next year Downstate peaker retirements and seasonal mothballing
as NYC peakers begin to retire. Repower projects at from 2023 drives our contango price view in Lower
Danskammer, Astoria and Gowanus are unlikely to be built. Hudson Valley and NYC, though by less than forwards.
Source: NYISO, Company websites, EIA, ICE, Energy Aspects
14 PowerOil now more economic than local or imported gas in New England this winter
ISONE competing dispatch costs ISONE winter spark spreads
$/MWh $/MWh
Diesel and fuel oil units are in the money over Jan-22–Feb-22 at Widening diesel and fuel oil sparks—driven by AGT gas chasing
current forwards. Such plants maxed out at 2.4 GW during the meteoric TTF prices—indicates generators should be stocking
last major ISONE cold spell in January 2018. up on liquids ahead of winter, given current low inventories.
Source: ICE, Bloomberg, Mass DEP, EIA, EPA, Energy Aspects
15 PowerERCOT summer view unchanged despite ORDC, sparks rally
ERCOT-N peak summer prices ERCOT renewable capacity
$/MWh GW
Wind Solar Battery
60
50 0.2
2.2
3.4
1.2 2.7
12.5
40
9.1
30
20 1.2
2.2
36
33.2
9.5
7.3
10
9.1 9.4
0
Eff. cap Icap 2021 Online y/y Icap 2022 Eff. cap
2021 (June 22) 2022
Seasonal rally and potential for more scarcity hours under a Battery storage capacity will nearly double y/y by next
revised ORDC supports summer-22 prices. August sparks summer, with solar growing by another third despite
gain slightly m/m and y/y as power follows gas higher. modest construction delays pushing some projects out.
Source: ICE, Bloomberg, ERCOT, Energy Aspects
16 PowerDispatchable capacity rushes into the ERCOT queue ahead of market reform
ERCOT-N forward CT sparks ERCOT interconnection requests by fuel, type
$/MWh GW
Latest Month ago Year ago Sep 21 Sep 20
90 90
80 80
78
70 70
62
60 60
50 50
40 40 34
30 30
22
20 20
19
15
10
10 4 3
1 1
0
0
Nov 21 May 22 Nov 22 May 23 Nov 23 May 24 Nov 24
Gas CCGT Gas CT Wind Solar Battery
With higher gas prices y/y, peak summer sparks for higher Potential market reforms that would incentivise more
heat-rate units have dropped, but the spike in forward “dispatchable” capacity have led to an increase in new CT
winters this year has raised forward CT sparks by 33% y/y. interconnection requests and a spike in battery filings.
Source: ERCOT, Bloomberg, Energy Aspects
17 PowerAnother warm start to autumn coupled with high outages underpins Q4 21 prices
Average load y/y, trailing three-month average Outages (PJM and MISO)
% MW
Y/Y Y/Y (W/N) vs 2019 MISO PJM
5% 70
4%
60
3%
2% 50
1%
40
0
(1%) 30
(2%)
(3%) 20
(4%) 10
(5%)
0
Sep 20 Dec 20 Mar 21 Jun 21 Sep 21 Dec 21
Weather-normalised loads have bounced back from pandemic Autumn outages are mostly higher than those seen in spring
reductions in PJM and the West, and they continue to climb in 2021 as coal units take long or unplanned shutdowns to
ERCOT. Northeast loads—especially NYC—remain the weakest. preserve coal inventories or because of a lack of fuel.
Source: ISOs, EIA, Energy Aspects
18 PowerNational clean performance standard still on the table
US state clean energy policy ▪ Debate continues over a federal budget reconciliation bill that would include
GW incentives to boost renewable generation by extending tax credits, although
a proposed Clean Electricity Performance Program (CEPP) has been scuttled
by opposition from moderate Democrats.
▪ The size of the budget reconciliation bill’s climate provisions and the overall
package have been whittled down by more than half from the original $3.5
trillion proposal. While we still expect the Democrats to adopt the overall
infrastructure, social and climate spending programmes, they are shrinking
clean energy funds and other spending to appease moderate senators.
▪ Under the CEPP, load-serving entities (utilities) would have had targets to
increase clean energy supply by as early as 2023. We believe the timeline’s
implementation, even if it had been adopted, would have slipped to 2024.
Regardless, expectations for persistent subsidies, rising state renewable
portfolio standards and corporate greening are driving continued increases in
new renewable interconnection requests nationally.
▪ State clean energy targets have also increased in the past quarter, with Illinois
beginning to reduce gas and coal plant emissions from 2030 and Washington
state set to trim generators and other large emitters from 2023.
Note: Dark green states have legislative clean energy mandates; lighter green are states with executive orders
Source: Energy Aspects
19 PowerWind, solar growth to stretch into 2022–23, even before new federal targets
Installed renewable capacity, y/y Wind capacity factors
GW %
Wind Solar ERCOT SPP MISO
7 50%
45%
6
40%
5
35%
4 30%
3 25%
20%
2
15%
1
10%
0 5%
SERC
SERC
SERC
ERCOT
ERCOT
MISO
ERCOT
MISO
MISO
PJM
PJM
PJM
NYISO
NYISO
NYISO
SPP
SPP
SPP
ISONE
CAISO
CAISO
ISONE
ISONE
CAISO 0%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct
2020 2021 2022
Ongoing supply chain disruptions and labour shortages Wind capacity growth has increased total available
have pushed some new projects later into 2022 and 2023. generation, but it also raised price volatility due to large
While financing risks persist, interconnect queues surge. swings in utilisation this summer.
Source: Company websites, EIA, EPA, Energy Aspects
20 PowerOur general disclaimer (“Disclaimer”) is an essential part of this Publication and can be located in www.energyaspects.com/disclaimer We ask our clients to familiarise themselves with the Disclaimer when reading this Publication. The current version of the Disclaimer is deemed to be incorporated in this Publication as though it was set out in its entirety herein. Copyright © 2021 Energy Aspects Ltd. All Rights Reserved NO PART OF THIS PUBLICATION MAY BE REPRODUCED IN ANY MANNER WITHOUT THE PRIOR WRITTEN PERMISSION OF ENERGY ASPECTS Energy Aspects Ltd is registered in England No. 08165711. Registered office: 25 Canada Square, London E14 5LQ, United Kingdom analysts@energyaspects.com LONDON | NEW YORK | HOUSTON | SINGAPORE
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