Power plants benefit from supply shortages.
During the June heat wave, PJM energy prices reached 400$/MWh. The bulk of that went to gas plants. Meanwhile, 34 GW of solar plants, that would have reduced prices significantly, are sitting on PJM's interconnection queue.
The June heat wave in PJM was a windfall for gas power.
On June 24, at 6PM Eastern Daylight Time, the PJM power market hit the third-highest demand in its history: 162,401 MW. The weather forecast started predicting an intense heat-wave days earlier, and the market demand forecasts started reflecting high demand soon after. By June 21 day-ahead prices were spiking: 125$/MWh during the peak of forecasted demand1.
On June 21, PJM issued a Maximum Generation Alert: transmission maintenance was deferred, and planned generator outages were cancelled. Every generator that could safely produce energy was pressed into service.
And energy prices rose. On June 22, day-ahead energy prices reached 300$ per MWh.
On the same day, PJM began issuing non-emergency demand response programs, asking specific locations across the market to reduce their demand and relieve the pressure.
On June 23, day-ahead prices hit 400$/MWh.
As it turns out, PJM had enough capacity to meet its demand: the lights stayed on, the crisis was averted. And producers of energy during this period reaped a healthy 400$ for every megawatt-hour they produced. Overall, buyers of PJM's energy paid $64 million for 1 hour; most of that money went to the owners of gas plants, who collectively pulled in $28 million.
We're left wondering: Why does a sunny day in midsummer result in a power market scrambling to turn on every gas plant it can find, and forking over hundreds of dollars per megawatt-hour for the pleasure? The answer is simple: demand was high, and supply was low. In the PJM market, that means prices are allowed to rise as high as someone is willing to pay. And those prices were paid. By utilities who were trying to keep the lights on and ac units working. Sometimes those utilities were also producers and thus reaped generation profits, but many times not. And next year, when those utilities start talking about raising rates on people, one of the justifications will be the high cost of energy. Ultimately, the people who live in PJM's territory will be the ones who pay for June's heat wave.
And the worst part is that the whole situation was avoidable. There is 34,000 MW of solar capacity sitting on PJM's interconnection queue, just waiting to relieve the pressure of days like June 24.
During June 24's peak demand hour, solar power operated at 73% of capacity: for every megawatt of installed solar capacity, PJM received 0.730 MWh of energy. At this rate, the 34,000 MW of solar capacity in the interconnection queue would have generated almost 25,000 MWh of energy--more than a third of the gas generation required.
It is impossible to know exactly which generators would have turned off had all that solar been present, and similarly impossible to say exactly what would have happened to energy prices. But we can make a reasonable guess. Additional generation can be treated the same as reduced demand, so if all the queued solar capacity had been installed on June 24, it would have been as if PJM's peak was only 138,000 MW: equivalent to the peak demand that occurred at 6 PM on June 28. On June 28 at 6PM, PJM day-ahead prices averaged around $50/MWh.
Every 1.362 MW of solar capacity kept off the PJM grid on June 24 allowed some lucky power plant to accrue additional profits. And since the bulk of power produced during that time came from gas plants, the bulk of those additional profits were directed towards those same gas plants. In short, on June 24, gas plants directly benefitted– to the tune of 350$ per MWh – from PJM's inability to get solar power off their interconnection queue and onto the grid.
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Notes
- Day-ahead prices are paid one day ahead of delivery. So if you bought 1 MWh of energy on the day-ahead market on June 21, you'll receive that energy on June 22 (at the time you bought it for).
- For the mathematically inclined, we got 1.36 by inverting the capacity relationship: If each MW of installed capacity produced 0.730 MWh of energy, then to get 1 MWh of energy, we would need 1.36 MW of installed capacity.