On October 17, 2019, FERC issued its 2019-2020 Winter Energy Market Assessment (“Assessment”), which is a summary of staff’s expectations about market preparedness, including a high‐level assessment of the risks and challenges anticipated in the coming winter operating season. In its 2019-2020 Assessment, FERC highlighted that: 1) the National Oceanic and Atmospheric Administration (“NOAA”) forecasts a warmer than average winter; 2) natural gas storage levels are expected to be average going into the winter; 3) natural gas futures prices are lower than last winter; 4) a diverse and changing generation resource mix will maintain electric reliability this winter; and 5) expected winter reserve margins exceed reference levels in all regions.
FERC stated that weather remains one of the largest determinants of outcomes in the energy markets. FERC reported that NOAA’s three‐month outlook for December 2019 through February 2020 predicts a higher than average probability for warmer temperatures across much of the continental United States, which would moderate fuel and electricity demand. FERC cautioned, however, that acute cold weather events can occur during warmer than average seasons and thereby increase the short‐term demand for natural gas and electricity, which creates significant operational and market challenges.
FERC reported that natural gas storage levels for this winter are close to the five-year average, reflecting robust storage injections throughout the 2019 injection season, which runs from April 1 to October 31. FERC stated natural gas storage levels have increased at the highest rate since 2015. Accordingly, FERC reported that natural gas futures prices are lower than last winter. Basis futures prices, which approximate the cost to deliver natural gas to regional markets, were lower for the upcoming winter compared to last year’s futures settlement prices across all regions except New England, where they were slightly up.
FERC’s Assessment showed that the past three years have seen significant additions of natural gas-fired and renewable generation across Regional Transmission Organization and Independent System Operator (“RTO/ISO”) and non-RTO/ISO regions, offsetting retirements of coal capacity and nuclear capacity. While more than 3.4 GW of coal capacity retired from March 2019 to June 2019, and another 6.2 GW of coal capacity is expected to be retired between July 2019 and February 2020, roughly 5.6 GW of natural gas capacity has been or will be added across the United States from the end of last winter through the upcoming winter. FERC reported that the installed capacity of renewable resources continues to increase, including significant additions of wind in the Midcontinent Independent System Operator, Inc and Southwest Power Pool, Inc. regions and of solar in California Independent System Operator Corporation region, which follows capacity addition trends from the past three years.
Based on the North American Electric Reliability Corporation’s preliminary 2019-2020 Winter Reliability Assessment, electric capacity reserve margins for all assessment regions will exceed their reference margin targets this winter. FERC noted, however, that although all regions are expected to maintain healthy reserve margins through the winter, reserve margins are not always guarantors of reliable electric operations during the winter. FERC indicated that fuel availability, particularly natural gas and fuel oil, can affect electric operations and must be monitored.
Click here to see the full Assessment.