Infinity Insights – Volume 8, Issue 12

AT-A-GLANCE SUMMARY

For ERCOT, the what ifs of summer continues to capture the most attention.

SUMMARY OF THE LAST WEEK IN CHARTS

Spot month natural gas (May) has support at 2.50 with resistance at 2.80 then 2.90 Calendar year 2019 has support at 2.76 with resistance at 2.85. Calendar year 2020 has support at 2.74 with resistance at 2.83.For a look at our monthly market reports, visit Infinity Power Partner’s Market Overview.

Roadmap

NYMEX natural gas spot month (May) finished up $0.068 at $2.701 compared to the 3/23 close.

Roadmap

What’s This? – The “Roadmap” is the price action chart depicting the NYMEX natural gas spot month. It’s important because it is essentially the trading community’s market sentiment.

Cal 19

Calendar 2019 settled ≈$0.0335 firmer at $2.80.

Cal 19

What’s This? – “Cal 19” is the first complete 12-month strip. It gives you a visual of price action and provides a reference point for our take on the market.

Cal 20

Calendar 2020 was higher by ≈$0.015 at $2.76.

Cal 20

What’s This? – “Cal 20” is the second complete 12-month strip. It gives you a visual of price action and provides a reference point for our take on the market.

OUR TAKE ON THE MARKET

ERCOT

ERCOT

For ERCOT, the what ifs of summer continues to capture attention. When a discussion about the potential shortfall of capacity is had, almost always there is a reference to the craziness of August 2011. August 2011 was the first time real time prices were stressed after converting from a zonal to a nodal model, and the price spike was a result of several factors, including “shadow pricing”. The ERCOT website glossary offers the following definition:Further explanation is offered: OPINE is a blog by the Utility Practice Group of the Lloyd Gosselink law firm:http://energylawpolicy.blogspot.com/2011/10/ercot-stakeholders-address-high-prices.htmlThe chart of LMP price history appears below:Note that since the 2011 spike, there has been no month average above $50/MW. The average from January 2012 to present is about $28.25. What we glean from this and additional studies is that LMP historically provides least expensive power pricing and, when experiencing a spike, will average price down over time.Why is this important information? This summer concerns for adequate capacity have spiked heat rate values for August to near where 2011 values were (7 X 24 average, 5 X 16 peak). Natural gas prices are lower today (mid- $4.30s in 2011 and $2.80s today). Demand Side Management (Demand Response programs primarily) are much more prevalent and folks await opportunities to curtail pulling power from the grid. On site generation has grown and likewise offers alternatives to grid power lifting. Things are different save for a sense of panic.If you have not locked prices for summer 2018, what do you do? The market price is fluffed, reflecting the possible shortfall of adequate generation. It can go higher. The 5 X 16 (peak) wholesale power price for August is comprised of the heat rate (≈75) and natural gas (≈2.80), or $210/MW. The Round The Clock numbers are ≈40ish and ≈2.80, or ≈$112/MW. Fixed price is an insurance policy. Insurance is key as the unknown is how will price caps work with $9,000 price cap? 2011 cap was $3,000. Question is, “how expensive is the premium?” It’s a material question.