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Press and Media

ERCOT real-time wholesale power prices spend hours above $2,000/MWh

by Mark Watson, August 13, 2019

Houston — As the Electric Reliability Council of Texas’ power demand neared another record for peakload Tuesday afternoon and ERCOT called for energy conservation, real-time wholesale power prices, including congestion and price adders, topped $9,000/MWh.

As a heat wave continued to grip the state, ERCOT set a record of 74,531 MW Monday, and real-time prices spent two hours and 15 minutes above $1,000/MWh, hitting as high as $6,537.45/MWh. Real-time prices spent another 2.5 hours between $100 and $999/MWh Monday.

High temperatures hit 100 degrees Fahrenheit in Houston Monday and 101 in Dallas and San Antonio, according to CustomWeather. They were forecast to hit 102 F in Dallas and San Antonio Tuesday and 99 F in Houston.

Around 2 pm CDT Tuesday, ERCOT forecast load to peak at 75,586 MW, but by 4:15 pm, that forecast had fallen to 74,552 MW, which still would have been a record. As of 4:30 pm CDT, ERCOT reported current system load at 74,181 MW. ERCOT’s previous record, set July 19, 2018, was 73,473 MW.

Systemwide prices, including scarcity adders and congestion, topped $100/MWh at 3 pm CDT Tuesday, settling at $216.09/MWh for the first 15 minutes. By 2 pm, the systemwide average was $2,004.19/MWh, and it stayed above that through at least 4:15 pm CDT – above $9,000/MWh for the period after 3:30 pm.

A weather system was forecast to move through much of the state Wednesday, limiting highs in Dallas and Houston to the low to mid-90s, but San Antonio was still expected to hit 100 F.

Around 3:15 pm Tuesday, ERCOT declared an Energy Emergency Alert, as physical reserves had fallen below 2,300 MW, and called for voluntary energy conservation between 3 pm and 7 pm CDT. The EEA allows ERCOT to “call on all available power supplies, including power from other grids, if available,” according to an ERCOT EEA document.

ERCOT made it through the summer of 2018, which was hotter through June and July, without having to declare an EEA.

The Public Utility Commission of Texas also called on residents to limit their electricity usage.

“When the energy demands of our state’s steadily growing population and booming economy intersect with hot summer temperatures, the supply of power can get a little tight, so we’re calling on Texans to help moderate demand for electricity with a few simple choices during the late afternoon hours this week,” PUC Chairman DeAnn Walker said in a media release.

Asked to speculate about the long-term effects of this week’s heat wave and power market behavior, Campbell Faulkner, senior vice president at OTC Global Holdings, an interdealer commodities broker, said that if the market has to reach the next level of Energy Emergency Alert, ERCOT can reduce system demand by interrupting power for large industrial customers who have contractually agreed for such contingencies.

If such an event happens, Faulkner said that “in the long term the market will likely move to a capacity market structure.”

“This is due to the fact that ERCOT has not replaced a lot of the coal fleet retirements with large gas-fired base load [generation] due to financing costs and variability [historical] of natural gas [prices] as compared to coal/nuke fleet,” Faulkner said in an email Tuesday. “Today there is concern about rotating outages and automatic load shed if the total load is not reduced…. Over the past two days the variability in grid frequency shows that the market and generators are struggling to maintain grid tie and voltage.”

Please find the article linked here and full coverage in the email below: ERCOT real-time wholesale power prices spend hours above $2,000/MWh

Power demand, prices soar with temperatures

by L.M. (Wooty) Sixel, August 13, 2019

The heat wave blanketing Texas drove wholesale power prices to record levels Tuesday as triple-digit temperatures strained electricity supplies, spurred calls for energy conservation and drew the Texas power grid perilously close to rolling power outages.

Wholesale electricity prices in Houston soared to $9,000 per megawatt hour for more than an hour Tuesday afternoon and as high as $9,100 per megawatt hour in other parts of Texas, reflecting transmission congestion costs that allow prices to exceed the $9,000 statewide price cap. In comparison, prices were about $19 per megawatt hour at 8 a.m. Tuesday.

The surging wholesale prices are likely to lead to higher prices on retail electric bills for consumers and businesses in the future.

The state grid manager the Electric Reliability Council of Texas alerted power generators Tuesday afternoon that power reserves were in such short supply — dipping below 2,300 megawatts — that an emergency condition already existed or was imminent and called for conservation measures. The alert raised concerns whether Texas would have enough power to get through the hot afternoon or whether the state would have to resort to extreme measures such as rolling blackouts.

Houston’s heat index was 107 degrees Fahrenheit at 2 p.m. Tuesday, according to the National Weather Service. Power demand peaked at 74,181 megawatts, just slightly below Monday’s record of 74,531 megawatt.

When power reserves are so tight and demand so intense, a malfunction in just one generating unit could be enough to trigger temporary blackouts, said Campbell Faulkner, chief data analyst for the commodities trading firm OTC Global Holdings. The grid was headed for shortages Monday until 7,000 megawatts of wind power came online, Faulkner said.

Prices peaked Monday at about $6,500 per megawatt hour.

“We got bailed out by wind,” said Faulkner.

Late afternoon wind energy also relieved the tight power reserves and prices Tuesday.

Generating capacity sank low enough Tuesday to trigger hefty price adders authorized by Texas regulators. On Tuesday, the upward price adjustments contributed thousands of dollars to the price of each megawatt of power, often boosting power prices to the maximum level of $9,000 per megawatt hour.

The Public Utility Commission agreed this spring to increase the amount generators could charge for producing power during periods of peak demand. If operating reserves dip below 2,000 megawatts the price adders would increase the price of power to $9,000 per megawatt hour, the highest price allowed in Texas.

Price adders are lower when operating reserves range between 2,000 megawatts and 7,000 megawatts, but they can boost wholesale prices by hundreds of dollars per megawatt hour.

Power companies lobbied for the change, telling the utility commission that unless the upward price adjustments were made, generators would have little incentive to build new power plants or fix up old ones to accommodate population growth and increasing electricity demand. Another upward price adjustment is scheduled to go into effect next year.

In the first 10 days of August, the upward price adjustments have added about $30 per megawatt hour to the base price of electricity in Texas, according to the research firm S&P Global Platts. When the weather was milder in July, price adders boosted average electricity prices about $6.50 per megawatt hour over the course of the month.

Most consumers buy fixed power plans, and the price spikes this week are likely to show up in those plans when customers renew.

ERCOT on Tuesday called on consumers and businesses to reduce electricity use through 7 p.m. and suggested turning up thermostats, using fans, limiting the use of large appliances, shutting off pool pumps and closing blinds and drapes.

By 5:30 p.m., the emergency had passed and ERCOT canceled the conservation measures, according to ERCOT’s website.

Please find the article linked here and full coverage in the email below: Power demand, prices soar with temperatures

Power Blows Past $9,000 Cap in Texas as Heat Triggers Emergency

by Chris Martin and Naureen S Malik, August 13, 2019

Electricity prices briefly surged past a $9,000 a megawatt-hour price cap in Texas as extreme heat sent power demand skyrocketing and forced the state’s grid operator to declare an emergency.

As temperatures in Dallas climbed to 103 degrees Fahrenheit (39 Celsius), the Electric Reliability Council of Texas issued an emergency alert, calling on all power plants to ramp up and asking customers to conserve. At one point on Tuesday afternoon, the region had just 2,121 megawatts left in power reserves, less than 3% of total demand on the system.

The prospect of supply shortages sent wholesale electricity prices surging past $9,000 a megawatt-hour for several minutes, triggering a limit set by Ercot to avoid runaway prices during extreme events. They remained near the cap at around 5 p.m. local time as demand began leveling off and the region’s supply margins widened.

Power contracts traded on the Intercontinental Exchange were similarly headed for record settlements, said David Hoy, an electricity trader at Dynasty Power. “It’s almost guaranteed now,” he said.

The unprecedented rally highlights how fragile Texas power markets — and to a lesser extent, markets across the U.S. — have become as giant, conventional power plants retire, squeezed out by cheap natural gas and renewable energy resources. Texas’s grid operator has been warning for months that plant shutdowns and increasing electricity demand has left it with slim supply margins.

“We are seeing the coal fleet retirement hasn’t been replaced with a lot of large gas plants,” said Campbell Faulkner, chief data analyst for commodities broker OTC Global Holdings. “We are changing the generation mix and that is what this is caused by.”

What BloombergNEF says: “Power demand is growing faster in Texas than anywhere else in the U.S.” –Brian Bartholomew, analyst covering U.S. power markets

Electricity demand hit an all-time high of 74,531 megawatts as people blasted their air conditioners on Monday afternoon and totaled 74,310 megawatts at 4:34 p.m. local time Tuesday, according to Ercot. Temperatures were forecast to peak at 103 degrees in Dallas before cooling off Tuesday evening and falling back below 100 degrees on Wednesday. The National Weather Service has issued a heat advisory until 8 p.m. local time.

“Extreme heat across the Ercot region will continue to result in high loads,” Ercot said in a statement. “We may set another new record today.”

This week’s price spikes also underscore how dependent the region’s power grid has become on wind farms, which now make up about a quarter of the generation capacity in Texas. Lackluster breezes contributed to the higher prices, said Flannan Hehir, a power analyst at energy data provider Genscape.

Wind power generation in the region has plunged for three straight days, grid data compiled by Bloomberg show.

Power generators with plants in Texas rallied on Tuesday. Vistra Energy Corp. gained 2.4%, and NRG Energy Inc. rose 1.9%.

“We would expect Vistra to have enough capacity to meet the high load and profit from the spike in prices,” Citigroup Inc. analysts led by Praful Mehta said in a research note.

Please find the article linked here and full coverage in the email below: Power Blows Past $9,000 Cap in Texas as Heat Triggers Emergency

ERCOT’s extreme prices unlikely to result in new thermal generation: experts

by Mark Watson, August 14, 2019

Houston — The Electric Reliability Council of Texas’ systemwide real-time wholesale power prices on Tuesday spent more than four hours above $1,000/MWh and 90 minutes around $9,000/MWh, but industry observers Wednesday said they generally doubted it was enough to incentivize conventional generation capacity growth.

Evan Caron, co-head of TrailStone Power, an energy asset management company based in Austin, Texas, said this week’s pricing is unlikely to prompt investment in retaining or expanding capacity in ERCOT, because the real-time price jumps “barely moved the forward curve” in Tuesday’s trading.

The July 2020 on-peak package settled around $86.21/MWh on Tuesday, up from $85.03/MWh on Monday and $82.62/MWh on Friday, according to the Platts M2MS forward curve. Wednesday’s price jumped to $95.66/MWh. As context, the July 2019 on-peak package averaged $79.33/MWh in August 2018.

The August 2020 on-peak package settled at $135.95/MWh on Tuesday, up from Monday’s $134.11/MWh and Friday’s $130.34/MWh, but Wednesday’s price jumped to $150.74/MWh.The August 2019 on-peak package averaged $122.33/MWh in August 2018.

“While yesterday’s market outcomes are still being analyzed, it is unlikely that these high prices were sustained for a long enough period to signal on their own that new investment is economically viable in ERCOT,” said Michele Gregg, executive director of Texas Competitive Power Advocates.

‘HEADWINDS OF A RECESSION’

Campbell Faulkner, senior vice president at Houston-based OTC Global Holdings, an interdealer commodities broker, said, “I do not foresee additional generation based off of the past two days, particularly gas baseload plants.

“The ultimate question is: Will companies facing the headwinds of a recession be willing to bet on financing and continued low gas prices?” Faulkner said in an email. “If gas remains low, more gas … capacity will be built, but it’s a difficult act, especially for firms that remember the price volatility from just a few years ago. Five-dollar gas changes a large amount of the economic structure for gas baseload power production, and a lot of firms have been burned building capacity in ERCOT.”

Several industry observers foresee additional price volatility in the summer of 2020, when ERCOT’s latest Capacity, Demand and Reserves Report forecasts a planning reserve margin of 10.5%, up from this summer’s 8.6%, but well below the 13.75% considered the minimum necessary to ensure ERCOT has capacity-related power outages no more than one day in 10 years. The planning reserve margin is the percentage by which generation resources exceed forecast peakload.

“Prices next summer should be very volatile, particularly if the summer is warmer than this year,” Faulkner said. “Most of the June-July stretch was relatively cool, limiting peak demand on the ERCOT [grid]. If we continue to see coal units retired along with the constantly growing demand for power in Texas, seeing [Energy Emergency Alert] events might become much more common.”

Asked whether presidential politics may be delaying final investment decisions for generation in ERCOT, TrailStone’s Caron said, “Possibly, but we will lose the rest of the coal fleet regardless.”

“One day doesn’t make their year, especially as they were all probably 80% or more hedged coming into the month,” Caron said.

OTC Global’s Faulkner said the “extremely low thermal cost of gas vs. thermal coal” is a bigger factor that presidential politics on thermal generation investment.

“Much of the hand waving and bluster from Washington casts a shadow but does not directly act to inform the hard reality of generation mix and grid reliability in Texas,” Faulkner said. “Anyone who claims that there will be a totally renewable electric supply anytime soon is either consigning the ‘rest of us’ to poverty via extremely high energy prices or is totally ignorant of the realities of a stable electricity supply (physics, grid planning, etc.).”

WIND OUTPUT EFFECTS

One factor that appears crucial during Tuesday’s price spike is the lack of wind output during peak times.

While acknowledging that ERCOT declared an Energy Emergency Alert for the first time since 2014, TCPA’s Gregg said, “ERCOT managed the grid exceedingly well.”

“However, the correlation between reduction in wind and the need for reliable thermal generation cannot be ignored,” Gregg said. “The desire to have renewable energy should not overshadow the need to also invest in reliable thermal generation.”

From a high of around 16 GW between midnight and 1 am Tuesday, the wind fleet’s hourly average output dropped to less than 2.8 GW around noon CDT, and stayed below 5.5 GW through 5 pm CDT. ERCOT’s highest systemwide average prices ranged from 3 pm to 5 pm.

“We’re likely to see many more price spikes like this in the future,” said Sean Kelly, CEO of Amperon, a New York-based grid analytics provider for utilities, retail electricity providers and independent system operators.

“The systemwide load curve is higher due to rapid population growth, and had the temperature been a few degrees hotter, demand could have blown right through the 2.3GW of reserves,” Kelly said in an email. “From a price perspective, the market design is working, but high prices alone won’t save the grid from blackouts.”

This was the first summer since the Public Utility Commission of Texas mandated changes to ERCOT’s Operating Reserve Demand Curve, a price adder that increases as reserves reach scarcity levels, that increase the likelihood and magnitude of those price adders.

However, Adam Sinn, owner of Aspire Commodities, a Houston-based energy trading company, said the ORDC produces “a perverse incentive for the operation of a safe, reliable and efficient grid.”

“The ORDC is a capacity payment, but unlike the capacity mechanisms or market put in place in other electricity markets, there are limited, if any, requirements or restrictions accompanying the payment,” Sinn said in an email Wednesday. “Thus, for example, a generator can be both the cause of an ORDC payment as well as a recipient of the payment. That does not seem to be an efficient or incentive-aligned market design element.”

Please find the article linked here and full coverage in the email below: ERCOT’s extreme prices unlikely to result in new thermal generation: experts