Listening to industry experts' outlook for Northwest wholesale power markets this summer, a time-tested proverb came to mind:
For want of a nail, the shoe was lost.
For want of a shoe, the horse was lost.
For want of a horse, the rider was lost.
For want of a rider, the battle was lost.
For want of a battle, the nation was lost.
All for the want of a horseshoe nail.
The proverb dates back to at least the 1200s. It's stuck around so long because it has wisdom: Given the right conditions, a seemingly mundane event can trigger a series of cascading consequences with major significance.
Power grids are not immune from this. Just look at the 2003 Northeast blackout. Overgrown trees caused a sagging 345 kV transmission line to shut off, setting in motion cascading failures that led to North America's largest power outage and the world's second-largest.
The specter of rolling blackouts last August in California and Texas' disastrous February hung over a conference on Pacific Northwest Wholesale Power Markets that NewsData and CJB Energy Economics hosted June 17-18.
While a missing horseshoe nail isn't going to cause an outage in the Northwest, markets and balancing authorities across the West already are so encumbered this summer by physical and operational constraints that they have little margin to absorb abnormal events.
Like a car with bad suspension, how smooth or bumpy the ride is this summer depends in large part on the condition of the road. No one knows what conditions will be come July and August. That uncertainty already is contributing to wide gulfs between bids and asking prices for Schedule C firm sales and exchange services later this summer offered by WSPP, which includes many West and Northwest utilities.
Wholesale power markets in the West have recently altered. For years, large changes have had little overall effect on prices. But now that those markets are constrained, small events can produce outsized effects—or the knee of the curve, as Roger Gray, president and CEO of PNGC Power, called it.
The region is "well into" the knee, as shown by increasing market volatility, he said.
Wholesale markets already are seeing volatility this year. As if to underscore speakers' concerns, Mid-Columbia prices for day-ahead products spiked June 16, the day before the conference.
Mid-C daily index prices for heavy load hours hit $245/MWh, well over the $125 to $175/MWh range typical for peak heat days, Rich Flanigan, Grant County PUD's senior manager of wholesale marketing, told Clearing Up.
During Gray's presentation, he polled attendees on how much they would pay per megawatt-hour at Mid-C for peak August product. The most popular votes were for between $100 and $150/MWh.
For those bidders, "you all will not have received any power," he said. "If you were bidding around $200, $225, $250, you are likely going to be successful in your transaction."
Extended drought conditions across the West and forecasts for a hot summer have tightened market supply. The Northwest is experiencing a below average water year. The Northwest River Forecasting Center as of June 24 projected water flow at The Dalles through the summer to be 84 percent of average levels. Water conditions are so bad in California that several hydropower facilities are not even generating (CU No. 2009 ).
So far, heavy-load hour generation for California and Northwest hydropower this spring resembles 2015, the last low-water year, according to analysis by Energy GPS, said Jeff Richter, one of the consulting firm's principals.
California depends on Northwest hydro to get through summer. But with the dry conditions and record-breaking temperatures forecast for this summer, the Northwest could pay to keep those megawatts in the region.
"Once you do that, you've got to say you're pushing the problem down into California. Well, if California has a problem, what's that say about megawatts going out to the Desert Southwest?" Richter said.
Western power markets have always relied on each other, but their interdependence is much greater than before, he said.
Power planners and traders "have to be on top of what's going on not only in your backyard, but also in other people's backyards," Richter said. "They impact you, and you don't want to get hit on the side of the head with a baseball bat."
A new variable this summer is how backing off of COVID-19 public health restrictions will affect commercial and residential load curves. Offices and shops are reopening, but many people continue to work from home, and all of them will turn on air conditioning if they have it when the mercury starts rising, he said.
It is not clear if that is a long-term structural change or a short-term one, Richter said.
Either way, it changes the landscape this summer.
Increasing penetration of renewable energy resources and the retirement of fossil fuel-fired resources is exacerbating market uncertainty, energy consultant and former BPA Administrator Randy Hardy said.
California is buttressing its renewable energy capacity with battery storage, mostly with four-hour dispatch capability.
"Four hours is OK in California, but in the winter peaking Northwest, you need eight to 12 hours," he said.
California ISO Senior VP and COO Mark Rothleder highlighted steps the entity is taking to improve reliability. Most steps are longer term, though. This includes a docket at FERC to prioritize wheeling imports needed for resource adequacy in the state over power purchases moving through the state but not staying in it [ER21-1790]. That filing has kicked off a fight with utilities and power sellers in the Desert Southwest and Pacific Northwest.
There is more capacity this year in CAISO than last August when the operator had to implement rolling blackouts to maintain grid reliability, Rothleder said.
However, Hardy noted, while Northwest hydro was flush in August 2020, this year the snowpack has largely melted.
Adding to this, the current system in the Northwest and beyond is "too brittle, too fragile and exposed to temperature excursion risk that is unpredictable," Chelan County PUD general manager and former BPA head Steve Wright said.
Making it easier to move power around the West is critical to improving reliability and decreasing volatility, Wright said.
"It will take interstate transmission of a magnitude that we haven't done in this country for a long time and in the West since the AC and DC interties were built," he said.
Several speakers concurred that a federally led push to expand transmission capacity is key.
A week after the conference, President Joe Biden announced he has reached agreement with a bipartisan group of senators on a $1.2 trillion infrastructure package that would include building thousands of miles of new transmission lines to help expand renewable energy resources.
Environmentalists now generally support transmission lines as a way to help decarbonize the grid, said Ralph Cavanagh of the Natural Resources Defense Council.
To borrow from Elizabethan-era English poet John Donne, the West's mantra has become:
No balancing authority is an island,
Every loss of load event diminishes me.