CEO’s Message – July 2022
Economic Impact of Rising Generation Costs
Last month I wrote about energy demand and the potential for temporary power outages in Minnesota this summer. As a follow-up, I want to share more about the economic impacts we experience with our existing power generation resources.
We all know that the price of fuels are at an all-time high. This impacts us in several different ways, not just when we fill our vehicles up with gas.
When it comes to energy purchases, about 25% of the energy we purchase from our wholesale power provider Great River Energy (GRE) is from the general energy market and 61% comes from renewables. Since more and more of these market purchases are generated by wind and natural gas, it has led to higher energy pricing across the Midcontinent Independent System Operator (MISO).
When the demand for energy increases and supply is tighter, such as during a summer heatwave, energy prices increase even more.
GRE plans annually for rising energy demand during the summer. However, the unprecedented price hikes have far exceeded the plan for the current year. When that happens, the extra cost gets rolled up into the Power Cost Adjustment (PCA) and passed along to our members on their power bills. (You can read more about that in the April 2022 CEO Column.)
If you recall, GRE also has peaking stations throughout Minnesota that go into service when energy demand is projected to reach close to capacity. These peaking stations are designed to run on both natural gas and diesel fuel. Peaking stations can provide energy in any amount when needed.
Though these stations allow us to meet demand for our member-consumers, during this time in our history when both prices for natural gas and temperatures are so high, running the peaking stations has an economic impact on our Cooperative and our members.
But it’s not all bad news. Even though the demand for electricity in Minnesota approached record levels in June and MISO implemented conservative operations on June 15 in anticipation of a prolonged heatwave, emergency measures to maintain system reliability were not implemented.
From June 19-21, wind generation sources performed extremely well in Minnesota, which helped keep market energy prices in our region down even despite the heat. Plus, the wind energy allowed GRE’s peaking stations to remain idle.
“Wind resources provided low-cost energy much of the time [during the heatwave], but our natural gas peaking plants were ready to ensure reliability for the grid and provide energy hedges for our member-owners as market prices escalated,” Greg Padden, GRE Market Strategy Director, said.
We realize it is a challenging and volatile time. Stearns Electric continues to work daily on our members’ behalf to serve you with reliable, affordable energy.
Robin C. Doege
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