Extreme Alberta cold leads to record electricity prices
On January 14, 2020, the extreme cold snap in Alberta sent system demand to new heights, reaching 11,698 MW, just barely surpassing the previous high set two years ago by 1 MW. Beginning January 12, a frigid air mass settled in over the province, and the plunging temperatures coupled with untimely generator outages sent pool prices soaring for nearly a week. Although the majority of Alberta employs natural gas-fired furnaces for home heat, extreme cold conditions will still cause spikes to electricity demand, as consumers hunker down indoors. During the week, temperatures bottomed out at -34oC in Edmonton and -32oC in Calgary with wind chill pushing the actual feel below -40 oC.
Coal plant outages led to peak pool prices
While the cold certainly contributed to the increase in demand, the spike in cost was more likely a result of unplanned outages of two coal units at Sundance and Genesee Generating Stations. Extreme conditions can cause a myriad of issues for equipment, personnel and the fuel itself, which can freeze and become unusable.
Average January Daily Pool Price (2014-2020)
As a result of high demand and constrained supply, average daily pool prices eclipsed $500/MWh for four consecutive days, with several consecutive hours reaching the market price ceiling of $999/MWh. The previous January daily average record had been set in 2018, when prices reached $236/MWh. The sustained elevated pricing would have cost the average 1 MW facility over $90,000 for the month of January in electric commodity costs alone, with $60,000 incurred in the five day stretch. That figure is nearly triple the cost of the prior year, as January 2019 pool prices averaged $38/MWh (compared to $127/MWh through January 29).
Customers who curtail usage can profit
The historic low pool prices of 2016-2017 seem to be a distant memory for most in Alberta. While the high prices in the energy market may incentivize development of more generation in the future, in the near-term the market will continue to see volatility, especially under extreme weather conditions. Facilities with flexible operations can take advantage of current market volatility through the Operating Reserves (OR) program. During this cold spell, a customer with a 1 MW OR obligation would have earned $40K in OR payments, helping defray the cost of their electricity supply. Alternatively, those with more fixed service requirements can see benefit from hedging the risk of uncertain prices through forward energy purchases. In many cases, consumers can optimize their position by doing both.