Insights and analysis on wholesale prices and the electricity markets.
March 9, 2020
Each of the 7 US Independent System Operators (ISOs) establish daily or hourly pricing for the markets they serve by balancing supply and demand at over 60,000 pricing points across the US. This process, called Security Constrained Economic Dispatch (SCED), begins at the lowest physical levels of the electric grid where substations for load and electric plants for generation submit bids and offers for power. The formats used to publish these prices vary widely by ISO and usually cannot be interpreted easily. Clarity has gone through the painstaking process of translating the arcane language of price nodes “pnodes” into useful information such as Common Name and Location. Armed with the Location, we can then correlate each of these prices to our database and track pricing on a local level in all areas of the US where ISOs operate. This can be seen most clearly on Clarity’s heat map https://map.claritygrid.net/scatter-map.
The National view shown above demonstrates where there is price availability throughout the US and where there is not. As you can see, the Southeastern US and large swaths of the West are devoid of ISO pricing for power. Using the Pricing Scale to the left of the Chart most power is priced in the high teens or lower twenty dollar per megawatt hour territory. However, since all pricing must fit into the Pricing Scale shown, much of the nuance of pricing on a regional basis is lost. For example, if we choose only NYISO (shown below), we see that pricing varies more dramatically across New York State. While most prices fall into the low or mid-teens we see that power in Western New York State registers less than $5 per megawatt hour. No doubt benefiting from some of the cheapest hydroelectric power in the world next to Niagara Falls!
This phenomenon is not confined to NYISO as a unique confluence of circumstances can routinely drive power prices negative (yes, you can be paid to use power!). For instance, below is another heatmap of pricing in the Southwestern Power Pool (SPP). Central Kansas has seen the introduction of an abundance of new wind farms, Cimarron Bend, Bloom, and Flat Ridge to name a few.
These facilities operate at almost zero marginal cost when the wind is blowing, and the Investment Tax Credit makes production economically viable at the negative prices shown in purple.
The full heatmap of the US can be accessed without subscription from Clarity’s home page? Unlike individual ISO websites, we present each ISO’s pricing using the same standard mapping format, all in one place. Check it out.
January 8, 2020by Kevin Hannon
Deregulation of electricity markets is determined at the State level in the US. Currently 15 states (30%) provide for at least some, or all, customer classes to purchase power on a deregulated basis. However, because this group includes the relatively populous states of New York, Texas, and Illinois the percentage of the market which is deregulated approaches 35%. Under this framework, it is only the Energy portion of the bill, which is subject to competition, with the Distribution (last mile) cost of delivery regulated by the State Public Utility Commission (PUC). Also, most consumers do not realize that Cooperatives and Municipal Electric Distributors are not subject to PUC or State regulation even in otherwise deregulated states. Therefore, the Distribution components of the bill which typically include; a) Monthly Cost in dollars per month, b) Distribution in $/kwh, and c) Demand Charges in $/kw for mostly Commercial/Industrial customers, usually include many line items which reflect charges mandated by State regulators which are outside of a pure cost of service.
Understanding each of the components of electric billing requires a detailed breakdown of individual line items which may be buried in tariff documents measuring hundreds of pages long. In addition, these charges may change as frequently as every month requiring almost constant attention. The sheer number of Utility Distributors and Tariffs make this a daunting task. However, effective audits of customer billing as well as the tracking of high demand periods and peak (demand) charges require this level of detail. Demand charges alone can easily approach one third of a large customer’s monthly bill, making effective identification and measurement of such costs an important part of energy management overall. Also, in some cases customers may be eligible to enroll in alternative tariffs, such as Time of Use (TOU) and a granular line item detail of billing is necessary to determine which tariff is the most cost effective for the customer.
Clarity goes to the native public source for this level of tariff detail, typically the individual Utility’s website, to gather this data. Clarity uses these costs as well as hourly consumption and retail and wholesale pricing to construct something every electric consumer can recognize; a monthly bill. Clarity has in the past, dissected this monthly bill into four broad categories: a) Monthly Cost in $, b) Distribution in $/kwh, c) Demand in $/kw, and Energy in $/kwh. However, in response to requests from those who serve customers and large customers themselves, Clarity has now broken down each of these line-item costs into an easily readable pie chart on its platform (see below). In addition, hourly peak consumption is identified each month and the $/kw charge is displayed, see below. In this way, bill audit and energy management are made easier to accomplish for a customer in any zip code of the US!
December 16, 2019by Kevin Hannon
Wholesale prices as reported by the 7 US ISOs (Independent System Operators) come in two flavors:
In both cases the price for power settles at an hourly price which reflects daily or seasonal variations in consumption. Virtually all power in US markets where an ISO operates (70% of the US!) is initially purchased and sold under this pricing paradigm. Large market participants then use these to establish the basis for fixed price terms ranging from one month to several years in the future. Although FERC regulated ISOs establish the basis for most power transactions initially and are an objective and verifiable source of price discovery, these prices are rarely used or referenced outside of the sophisticated power market industry. In fact, industry publications that track energy contracting report that fixed prices dominate, ranging in share between 82-87% of all contracts in deregulated markets1. This despite the fact that our data indicates that index contracting is usually between 10-40% less expensive than fixed on an annual basis.
One potential factor in discouraging the use of wholesale (index) pricing is the need to independently price each hour against the actual or estimated usage over that hour. Keep in mind that a customer’s historic usage can vary by several multiples even between hours in the same day! While the proliferation of smart meters and standardized data protocols (Smart Meter Texas, Green Button, My Usage) has facilitated the ability of an electric consumer to understand their billing under real time pricing, the process remains cumbersome. In most cases, brokers, REPs, and or large end users track usage across different data formats and different locations in separate files making storage and updating this data difficult.
Clarity Grid’s platform accommodates files of varying formats and assigns usage data to specific locations while also storing it under each customer’s unique profile. This combined with an exhaustive data library of wholesale prices across the US, makes calculating the economics of contracts at wholesale prices easy, allowing greater focus on customer support and care.
November 7, 2019by Kevin Hannon
Most of us are familiar with the standard fixed rate electricity contract. We assume that locking in a price for a year or two is safe and stable and while there are scenarios in which this is true, how much could you save if you took a little bit of risk? What if there was a way to see the circumstances where an index contract could save 20 to 40%? Clarity Grid Solutions’ platform combines and analyzes key data sets which allow us insight into wholesale electricity markets and where the instances of potential savings occur.
How does an index contract work for the consumer? The index is either a set of 24 different hourly prices set before the day of delivery (Next Day) or for short time periods (5 minutes to 1 hour) just prior to delivery (Real Time). Since each of these hourly prices are different, they must be matched to the customer’s consumption during that hour. In addition to energy, other wholesale charges must be included; e.g., ancillary, capacity, ISO charges, etc. Finally, the “last mile” of delivery must be calculated from a tariff determined by the unique Distribution Utility assigned to a customer based upon their location, usage profile, consumption, and peak demand among others. The only appropriate way for a consumer to compare their true electricity cost, under what is most likely a fixed price, to a wholesale delivered price, is by combining wholesale energy and these other charges, multiplied by the appropriate hourly usage, plus the Distribution Utility’s tariff.
Clarity Grid Solutions has done all the hard work to make this comparison easy. While other published prices represent HUBs, settlement indices, or specific blocks of hours, such as “peak”, they are wholly inappropriate for a customer bill comparison, therefore, Clarity Grid Solutions has initiated a “Clarity Index” for major cities and consumer types which may be directly compared to fixed prices in those areas, so consumers may gauge for themselves if the savings that consistently come with an index contract are worth a small increase in risk.