Smartest Insight | Issue 97
Our weekly company round-up covers the key market and industry news in one place, so you don’t have to look any further to stay ahead.
November 10, 2022
Market Update:
This was a rebound day in the Natural gas markets with prices bouncing around $0.35/MMBtu as weather forecasts came in mixed on the possible cold shot over the next 1-2 week range. Weather models have confirmed a cold shot that is likely to impact the entire lower 48 over the next 1-2 weeks. The first cold shot is expected this weekend or early next week, followed by a possible warm pause mid-to-late next week, and then colder risk going into Thanksgiving week. Post Thanksgiving there are signs of a warming trend in the far backs of the forecast in the South/Southeast going into the end of the month. The EIA storage report for the week ending 11/4/2022 came in slightly below consensus estimates (79 Bcf vs 82 Bcf). For frame of reference the 79 Bcf injection, albeit a little light, is ~ 4x the five-year average for the same period and next week is likely to be another large seasonal injection which should all but eliminate the deficit to the five-year-average. The prior two trading sessions moved lower and seemed to be part of a move with the larger energy complex, with crude selling off exactly at the same time. Sentiment also remains bearish from Freeport, as the market seems to be in agreement that the restart will be delayed until December
3 year view of the calendar strip price
Market Monitor Concludes That Market Flaws Artificially Reduced PJM Capacity Prices
On October 28, 2022, Marketing Analytics (PJM’s independent market monitor) issued a report on PJM’s Base Residual Auction (“BRA”) for the twelve months ending June 2024. The report concluded that the auction, which was conducted in June 2022, was competitive, but market flaws reduced generator revenues by 24.3%. PJM’s last two BRAs, for 12 months ended June 2023 and the 12 months of June 2024, resulted in prices for PJM’s unconstrained areas of $50/MW/Day and $34/MW/Day. These results are significantly below the unconstrained price for the 12 months ended June 2022 of $140/MW/Day. Marketing Analytics expressed concerns that artificially low capacity prices could encourage generators to retire early, which could impact reliability. Here are the main flaws identified in the report:
- According to Marketing Analytics, demand response materially increases the supply in BRA auctions but provides little reliability value.
- The report noted that PJM overstated the capacity value of wind and solar generators, which increases supply in the BRA auctions. PJM is working on rule changes for this item.
- PJM allows capacity imports from neighboring regions,
which increases supply in BRA auctions. However, the deliverability of neighboring generation to PJM is questionable.
Transmission line from Quebec to NYC Obtains Financing
On November 1, 2022, the developers of the Champlain Hudson Power Express (“CHPE”) transmission line announced that financing for the project has been secured. The $6 billion, 339 mile HVDC transmission project will move 1250 MW from Hydro Quebec to New York City. CHPE is on Market Monitor Concludes That Market Flaws Artificially Reduced PJM Capacity Prices Transmission line from Quebec to NYC Obtains Financing On November 1, 2022, the developers of the Champlain Hudson Power Express (“CHPE”) transmission line announced that financing for the project has been secured. The $6 billion, 339 mile HVDC transmission project will move 1250 MW from Hydro Quebec to New York City. CHPE is one of two large projects that were awarded 25 year Tier 4 REC contracts by the New York State Energy Research and Development Authority (“NYSERDA”) in April 2022. Hydro Quebec will supply hydropower and Transmission Developers (a Blackstone Group company) will own and operate the transmission line. The project is expected to be in-service in late 2025/early 2026. The above market costs of the Tier 4 contracts will be charged by NYSERDA to electricity suppliers and will ultimately passed on to customers.