White Papers

Of Polar Vortexes and PJM Price Spikes

Addendum #2 to Polar Vortex Energy Pricing Implications

Categorized Under: Energy

 

 

This ICF International white paper takes a closer look at how the polar vortex has directly resulted in PJM price spikes. As discussed in the previous polar vortex white papers, Polar Vortex Energy Pricing Implications and Commercial Opportunities and System Reliability, extremely high power prices create significant commercial opportunities that can be partially predicted in advance. They also highlight the need for careful attention to reliability policy and planning because of changes in resource mix and market rules.

These conclusions have been dramatically reinforced by the developments that took place January 20–24, 2014. Delivered natural gas prices in the East reached all-time record levels of well above $100/MMBtu and well above prices in early January 2014. This situation resulted in extremely high wholesale power prices. The costs of producing electricity also exceeded the wholesale generator offer cap, which dangerously and inadvertently created incentives not to perform and thus endangered grid reliability. As a result, careful policy and planning changes are needed to accommodate the new power gas relationship. This white paper addresses these issues as well as several other topics, including:

  • PJM natural gas prices hit record
  • Consequences for wholesale power prices
  • Cause of high downstream natural gas prices
  • Increased focus on summer-only resources
  • Incentives for reliable winter operation
  • Commercial consequences

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Authored By

  • Judah Rose

    Senior Vice President and Managing DirectorICF International

    Judah Rose joined ICF International in 1982 and has 30 years of experience in the energy industry with clients such as electric utilities, financial institutions, law firms, government agencies, fuel companies, and independent power producers (IPPs). He is an ICF Distinguished Consultant, an honorary title given to three of ICF's 4,500+ employees. He has served on the ICF Board of Directors as the management shareholder representative.

    Mr. Rose has supported the financing of tens of billions of dollars of new and existing power plants and is a frequent counselor to the financial community. He provides expert testimony and litigation support, addressed approximately 100 major energy conferences, and authored numerous articles.

    Mr. Rose has a B.S. degree in Economics from Massachusetts Institute of Technology and an M.P.P. degree from the John F. Kennedy School of Government at Harvard University.

  • Dave Gerhardt

    PrincipalICF International

    An energy analyst with more than 15 years of experience in energy economics and energy engineering issues, David Gerhardt is ICF's lead power generation engineer in wholesale power. His recent work has focused on combined heat and power, asset valuation, wholesale power litigation, risk management, and power plant air permits. The lead analyst in the financial restructuring of a distressed portfolio of power assets, he is developing a power plant siting and power plant brokerage service. He previously worked at Energy and Environmental Analysis, Inc., the New York State Energy Office, and Solarex.

    Mr. Gerhardt has a B.S. in Mechanical Engineering from Rochester Institute of Technology and an M.S. in Energy Management and Policy from the University of Pennsylvania.

  • Senior AssociateICF International

    John Karp joined ICF International in 2007 and has helped provide power market valuations, cash-flow forecasts, and energy market forward price curves for various clients, including independent power producers (IPPs); investment firms; utilities; and state, federal, and local governments and regulators. Mr. Karp has significant experience using ICF's proprietary energy model, IPM, to deliver long-term energy price forecasts and power portfolio valuations.

    Mr. Karp has a B.S. and an M.S. in Systems Engineering and Operations Research from the George Washington University.

  • Frank Brock

    Senior Energy Market SpecialistICF International

    Frank Brock has more than 17 years of experience in energy economics and modeling. His areas of expertise include the analysis and modeling of natural gas end-use demand, natural gas use for electric power generation, and renewable energy and energy efficiency technologies.

    At ICF International, Mr. Brock has participated in dozens of studies for both public and private sector clients on such topics such the valuation of energy infrastructure assets, the impacts of environmental policies on energy markets, and long-term trends in energy demand.

  • Mohit Shrestha

    AnalystICF International

    Mohit Shrestha has expertise in ICF's proprietary linear program electricity model (IPM®) and has extensively used the model to provide decision analytics and strategic support for new investments, mergers and acquisitions, asset management, commercial contracting, financing due diligence, and integrated resource planning. He has extensive experience in performing advanced quantitative and economic modeling and analysis of energy markets to assess and forecast the future of electric power and fuel prices markets.

    Mr. Shrestha has a B.S. in Mathematical Economics and Applied Mathematics from Hampden-Sydney College.

Insight Details

Published: Jan 31, 2014
Authors: , , , , ,

Trisagni Sakya

 
 
 
 

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