On May 16, 2019, FERC’s Offices of Electric Reliability and Enforcement issued the Summer 2019 Reliability and Energy Market Assessment (“2019 Summer Assessment”), a high-level summary of anticipated reliability challenges for the upcoming operating season and prospective assessment of electric and natural gas markets. While higher than average temperatures are predicted for the West, South, and Eastern regions of the country this summer, the report concludes that reserve margins—a measure of the projected capability of anticipated resources to serve forecasted peak load—will be adequate in all regions except the Electric Reliability Council of Texas (“ERCOT”). The 2019 Summer Assessment also predicts high hydroelectric power production in California, continued rapid growth in battery storage, wind, and solar capacity, as well as growth in demand for natural gas driven by new LNG export capacity.
The 2019 Summer Assessment notes that the National Oceanic and Atmospheric Administration has forecasted higher than average temperatures for summer 2019 in the West, South, and East. These higher temperatures—generally the single greatest determinant of electric power demand in the summer—are expected to translate into increased load because of their correlation with greater use of air conditioning. However, net demand for electricity this summer is forecast to decrease by approximately 0.3 percent compared to summer 2018 due to reductions associated with greater energy efficiency and behind-the-meter systems. According to FERC staff, data from the North American Electric Reliability Corporation Regional Entities and Independent System Operators/Regional Transmission Organizations indicate that planning reserve margins for all regions except ERCOT will be adequate this summer.
The 2019 Summer Assessment also predicts continued rapid growth in battery storage capacity. In addition, FERC Staff state that wind and solar capacity for summer 2019 will exceed summer 2018 levels, with 14 GW of capacity planned to begin operation through August 2019. High hydroelectric power production is expected in California due to above-average snowpack, but below-average levels are expected in the Pacific Northwest and in British Columbia, which may limit the options for low-cost imports into CAISO this summer.
With respect to natural gas, the 2019 Summer Assessment indicates that futures prices are expected to be higher in some regions and lower in others when compared to summer 2018 levels. Natural gas futures prices reflect both projected demand growth and expected natural gas production growth from areas such as the Permian Basin and Marcellus Shale. New LNG export capacity is expected to nearly double in 2019, and will drive natural gas demand growth as a result. The report also predicts that the ongoing trend of nuclear and coal generation retirements combined with natural gas generation additions will continue into the summer. Furthermore, the 2019 Summer Assessment predicts an upward trend in natural gas power burn to increase by about 2 percent this summer when compared to summer 2018 because of long-term structural additions of natural gas-fired generating capacity, as well as short-term fuel switching dynamics favoring natural gas over other fuel substitutes.
Finally, the National Interagency Fire Center is reporting an above-normal risk for wildfires in parts of California, Oregon, and Washington this summer. The 2019 Summer Assessment notes that increased fire risk could pose a localized threat to the reliability of the electric system, as generating facilities can experience short-term operational issues due to wildfires.
The 2019 Summer Assessment is available here.