[co-author: Steven Boughton]
On May 19, 2022, FERC staff released its 2022 Summer Energy Market and Reliability Assessment (“Summer Assessment”). The Summer Assessment forecasts “higher than average” temperatures for the summer, which are expected to have a significant impact on demand for electricity, amid a continuation of extreme drought conditions in the West, and coming on the heels of the retirement of thousands of megawatts of baseload conventional resources.
The Summer Assessment, an annual report issued by FERC and the North American Electric Reliability Corporation (“NERC”), stated that above normal temperatures are likely to occur throughout the United States, which will increase the demand for electricity. It provided that heat-related reliability concerns are expected, particularly in areas with high solar penetration, where demand tends to increase as the sun is setting. The Summer Assessment also explained that “wide-area heat events” may stress the transmission system and lead to load interruption, particularly in the western United States, which is facing falling resource capacity.
The Assessment explained that warmer temperatures are projected to increase natural gas demand by 4.8% while supply is only anticipated to increase 3.4% from last year. As such, natural gas prices are expected to rise. FERC staff also report that natural gas storage inventories are approximately 15% below the average of the last five years with this year’s inventories 21% below last year’s at the same time. Additionally, LNG exports are expected to increase with recent liquefaction capacity expansion over the last year.
FERC stated that hotter temperatures coupled with high natural gas prices are expected to drive higher electricity prices in the wholesale markets. In some markets, electricity futures are up between 77% to 233% from last year’s settled prices. The markets are expected to add 30GW of net capacity (44GW new generation with 14GW retiring). The additional generation is comprised 65% from solar and wind, 21% from natural gas, and 13% from battery storage resources, with the Electric Reliability Council of Texas (“ERCOT”) adding the most net capacity of all the regions. ISO New England (“ISO-NE”) and New York Independent System Operator (“NYISO”) are forecasted to change the least from last summer.
Though generating capacity is forecasted to adequately meet demand plus a required reserve margin under normal operating conditions, the Summer Assessment warns that “all regions may face energy shortfalls during extreme operating conditions” with particularly acute risks in parts of the Midcontinent Independent System Operator (“MISO”), ERCOT, Southwest Power Pool (“SPP”), and the Western regions. FERC Staff also indicated that demand response may play a critical role in mitigating any deficit in supply.
The Summer Assessment projects that severe weather events will continue to affect transmission. An ongoing outage in MISO caused by a tornado is expected to keep 1,000 MW of firm transmission capacity from operating from mid-April through June. Furthermore, wildfires in the West, which have become more prevalent in recent years, are expected to reduce transmission availability as system operators turn off transmission to avoid sparking new fires and to protect firefighters battling active blazes. Finally, the Summer Assessment discusses the damage to transmission and distribution from prior hurricanes, noting that this season is expected to experience “higher than normal activity.”
The Summer Assessment is available here.
