I realize my blog posts are getting rather… dark… lately. I wish I could talk myself into a contrarian worldview on the economy, because I love bargain-hunting during financial pukes. I just don’t see the path there right now. And I am not sure how many investors are willing to get into the business of catching falling knives when their money is naturally worth less every day as it is. *shrug*
Alas, this post is going to be literally dark. As is rolling blackouts dark.
Even though I live in Florida (which has its own grid and a hurricane-tested army of professionals to service it), I tend to follow news developments for utilities out west. With family members in Colorado that are very much dependent on electricity for medical needs, unreliable power is becoming a thing to watch out for and prepare for. If you have any friends or family in similar circumstances, this is a good time to develop a plan for what they will do if things go haywire.
Power generation is ultimately about the ability to purchase and acquire fuel sources, and right now the commodities markets are treacherous territory. I was able to warn friends and family in Texas that the grid was likely to fail during the big freeze years ago just by watching wholesale energy traders. Trust me, it’s better than listening to politicians.
Here are the summer electric power generation forecasts from regulators across all sources. For all the fluff about alternative energy, we are looking at higher demand for fossil fuels.
Per the Department of Energy: “We forecast the price of natural gas delivered to electric generators will average nearly $9 .. between June and August 2022, which would be more than double the average price last summer.”
I feel like that estimate of $9 is kind of aggressive considering what commodities markets have been doing lately. This forecast is for months out, and we are already almost there in the markets.
What does this mean for American consumers? The best-case scenario is that you get much higher utility bills. But regulators are also warning about availability and the likelihood of rolling blackouts:
Blackouts could plague a number of states in the U.S. this summer, regulators warn, as a combination of drought, heat, potential cyber attacks, geopolitical conflicts and supply chain problems could disrupt the power supply, according to a grim new report from the North American Electric Reliability Corporation (NERC).
The regulatory body found that large swathes of the U.S. and parts of Canada are at an elevated or high risk of energy shortfalls during the summer’s hottest months.
The Midwest is at especially high risk due to the retirement of older plants, which has caused a 2.3% decrease in capacity from last summer, as well as increased demand, according to NERC.
In the Southwest, plummeting river levels may cripple hydropower production, the group warned, and in Texas drought-related heat events could cause extreme energy demand.
Many states under the Midcontinent Independent System Operator (MISO), such as Arkansas, Louisiana, Michigan, Wisconsin, Iowa, Minnesota, Iowa, Illinois and Indiana are either entirely or partly at high risk.
“Industry prepares its equipment and operators for challenging summer conditions. Persistent, extreme drought and its accompanying weather patterns, however, are out-of-the-ordinary and tend to create extra stresses on electricity supply and demand,” said Mark Olson, NERC’s manager of Reliability Assessments. “Grid operators in affected areas will need all available tools to keep the system in balance this summer.”
In California, where all 58 counties are under a drought emergency proclamation, officials are already warning residents that more than one million addresses may go dark this summer due to an energy shortfall.
The drought hampers the state’s ability to harvest energy from hydroelectric dams – in 2021, for example, the state was forced to shut off hydropower generation at the Oroville Dam in Northern California for the first time ever.
Wildfires and forecasted hotter-than-normal temperatures are also projected to further strain the energy supply.
Energy officials in Texas, which is also under elevated risk, announced Monday that the state is expected to have “sufficient” capacity to meet peak demands under normal conditions. However, a combination of factors such as extreme demand, low wind and outages at production plants could lead to blackouts.
Over the weekend, just days before the Electric Reliability Council of Texas (ERCOT) said it expected to have enough power this summer, officials asked Texans to conserve power after unseasonably high temperatures created record demand.
Both Texas and California suffered widespread solar energy losses after grid disturbances unexpectedly knocked them off line.
See also:
NERC 2022 Summer Reliability Assessment (official report this article is based on)
Power shutoffs possible for Californians this summer (KTLA)
Does ERCOT think it will have enough power this summer? Here’s what its own report says (KXAN – Austin)
Vast Swath of US at Risk of Summer Blackouts, Regulator Warns (Bloomberg)
Days of Sunshine 
I’m so thankful we belong to a rural electric co-op. We did have rolling outages during the big freeze, but not like some places. And no big bill.
So I finally watched The Big Short and now I’m trying to imagine what conditions could lead to something catastrophic happening to the market.
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Have you seen Margin Call? It’s a good one too.
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Yes 👍
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