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  • Charles Hinckley

Misbehaving power markets and fat tail harmonics coming to your mailbox in a utility bill


The WSJ today published an article by Katherine Blunt about the fact that US power markets are tight headed into summer; very good read. All the grid operators are apparently doing some PR management in advance of what appears to be a difficult summer setting up.


The issues are far deeper and difficult to address than appear on the surface. I have been searching for coverage and opinions as to what is going on - - whatever the causes of the underlying movements in the US power market, these movements are seismic.


What’s up? Prices for power. US power was long very well behaved. Prices modulated in a very static and well understood range.


See trailing five-year price graph of Midwest power. Today’s price of $117 is a bit more than the historical average of $38. It's MAY.


Historically well-behaved Midwest power:

Most prices are tightly grouped (around the low average price in the $30’s).


Markets are currently very misbehaved, see first graph of the current market price histogram. Volatility has more than doubled, considerable hours are in the first standard deviation range, and there is a tail out three standard deviations from the average. That’s a lot of misbehavior.


Starting in July of 2021, prices started to creep up, forward prices started to creep up, and as we sit here today, power prices have exploded, and forward-looking market prices are up considerably. And this is May, a traditionally tame month in the power markets.


What is not going before politics take over: the green new deal. Firstly, the only power coming online are from renewables – so added renewable generation is a help to the market, its cost of entry far below current market prices. Secondly, the Biden Administration has been a disaster for renewables. It extended Trump era tariffs, opened yet another un-imaginable tariff investigation that has brought solar power construction in the US to a near halt, and failed to pass needed tax benefit extenders that had broad support.


This train wreck has been over a decade long in coming, and one of the problems is we can not get low-cost renewables permitted, financed or interconnected, well we can in Canada of course.


So, what is going on, will it reverse? I’m hoping for some input before I just publish my grim views.



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