Negative Power Prices in Ercot West – 2009 So Far

Michael Giberson

If you thought power prices in ERCOT’s West region were interesting in 2008, keep an eye on the prices in 2009. (For background see my earlier post on negative prices in ERCOT West for 2008. Note on updated data here.)

Late 2008 saw a few developments of note for the region:

• Almost 2000 MW of wind power capacity was added to ERCOT from September to December, most of it in ERCOT West.
• When ERCOT updated its zonal boundaries last Fall, a few dispatchable generators – coal and gas units – were moved from ERCOT West to the ERCOT North region.*
• Natural gas prices, which ranged above $10 per MMBTU last Summer, are now below $5 per MMBTU.
• The recession, and particularly the drop in oil and gas prices, will tend to reduce electric power demand throughout the state.

(*There are technical reasons justifying the change in zone boundaries, which wasn’t without controversy, but combined with the first bullet point the practical effect is that the West region prices will be even more reliant on intermittent wind power output.  ERCOT reviews zonal boundaries every year.)

How does this all shake out?  Safe to say that electric power prices in ERCOT generally, and ERCOT West especially, will be much lower this year. Peak prices will be kept down by lower demand and low natural gas prices.  Offpeak prices will be lower and more volatile because of the confluence of all four factors.

The key to producing negative power prices is subsidized wind power output in ERCOT West net of local load, compared to the transmission system’s capability to deliver the excess power out of the area.  Lower load combined with more wind power capacity indicates a more volatile price situation.

Will ERCOT West see more frequent negative prices this year?

Yes.  In fact they already have.

In January 2008, ERCOT West was faced with negative prices about 8.3 percent of the time; in January 2009 the region faced negative prices 12.5 percent of the time.  This increase in the number of negative priced periods resulted despite a drop in average wind speed in the area.  (At the Abilene Regional Airport, near the heart of the wind power in the area, the average wind speed in January 2008 was 12.1 mph, while in January 2009 it was 10.7 mph.)  Less wind, but more frequent negative power prices.  Not surprising given the substantial increase in wind power capacity, and not yet a comparable increase in transmission capacity.

So far, February 2009 has been a little windier than February 2008 at the Abilene Regional Airport.  While I haven’t examined February price data yet, I wouldn’t be at all suprised to see that February 2009 shows even more frequent negative prices than those of February 2008 (negative prices 18.8 percent of the time).