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Wind Power, Polar Vortexes and Price Gouging

Andrew Burger headshotWords by Andrew Burger
Investment & Markets
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The appearance of the polar vortex in late 2013-early 2014 put much of the U.S. and eastern Canada in a record-setting deep freeze around this time last year, adding another new term to lay-people's weather-related vocabulary. The polar vortex also stressed power utility grids and generation assets, sending consumer demand and power prices soaring in markets from Texas to New England.

Wind power was a stand-out performer, however. According to study from American Wind Energy Association (AWEA), wind energy saved end-users in the Great Lakes and Mid-Atlantic states at least $1 billion during just two polar-vortex days last January.

In these and other regions, AWEA's Greg Hresko and Michael Goggin highlight: “[W]ind energy provided large quantities of critical electricity supply when it was needed most, keeping the lights on and reducing the impact of these price spikes.” According to their analysis, “[W]ind energy protected Mid-Atlantic and Great Lakes consumers from extreme price spikes during the polar vortex event” over just two days in early January 2014, “saving consumers over $1 billion on their electric bills.”

Two days, $1 billion in savings


The record-setting cold the polar vortex brought in two events from December 2013 to April 2014 prompted unusually high demand for electricity and natural gas, “both for heating and power generation,” Hresko and Goggin recount. The low temperatures led to outages at power plants as equipment breaking down and fuel shortages.

Electricity prices, meanwhile, “rose to dozens of times their normal levels in many regions. The Mid-Atlantic and Great Lakes states were particularly hard hit by these abnormally cold temperatures and the resulting energy price spikes.”

In their analysis, Hresko and Goggin calculate “how much more electricity prices would have increased had the region's wind generation not been online” Jan. 6 and 7, 2014. They do this by taking hourly grid operator data, data on fuel prices “and a detailed representation of the characteristics of every power plant in the region.”

In sum, they found that electricity consumers in the Mid-Atlantic and Great Lakes regional markets saved at least $1 billion as a result of wind power generation on just those two polar-vortex days. As they elaborate in their report:

"By diversifying America’s energy mix, wind energy improves electric reliability and protects consumers from energy price spikes. While wind energy always provides these benefits, they can become particularly pronounced when the electric grid is stressed."

New opportunities for power market manipulation, price gouging

Though wind power was a stand-out performer and power grids overall held up well to the strains the polar vortex put on generation and distribution assets last winter, the events revealed several troubling issues. Besides exposing the vulnerability of regional U.S. power grids to increasingly common and historically intense extreme weather events, it also revealed faults in the structure of power markets. That includes the potential for those who both own and speculate in U.S. power markets to “game” the system and reap windfall profits at the expense of consumers.

California residents and power market regulators should be very familiar with such conflicts of interest. Going down in notoriety, Enron traders shamefully – and shamelessly – manipulated power supplies and market prices when California first deregulated its power markets. While Enron traders instructed operators at power plants Enron owned to hold back electricity supply, the company was going long in the market, reaping extraordinary profits while California customers went without power and paid exorbitant prices.

Price gouging may be once again rearing its ugly head, according to a report from Al Jazeera U.S. “The test case is playing out in New England,” Al Jazeera's David Cay Johnston reported back in May 2014.

“Energy Capital Partners, an investment group that uses tax-avoiding offshore investing techniques and has deep ties to Goldman Sachs, paid $650 million last year to acquire three generating plant complexes, including the second largest electric power plant in New England, Brayton Point in Massachusetts.

“If regulators side with Wall Street — and indications are that they will — expect the cost of electricity to rise from Maine to California as others duplicate this scheme to manipulate the markets, as Enron did on the West Coast 14 years ago, before the electricity-trading company collapsed under allegations of accounting fraud and corruption.
*Image credits: AWEA; "Wind energy saves consumers money during the polar vortex," Greg Hresko and Michael Goggin

Andrew Burger headshotAndrew Burger

An experienced, independent journalist, editor and researcher, Andrew has crisscrossed the globe while reporting on sustainability, corporate social responsibility, social and environmental entrepreneurship, renewable energy, energy efficiency and clean technology. He studied geology at CU, Boulder, has an MBA in finance from Pace University, and completed a certificate program in international governance for biodiversity at UN University in Japan.

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