Southeast Energy Market Update:
Emerging Portfolio Management Challenges & Opportunities

Patrick McGarry
Senior Director

Obstacles & Opportunities Abound in Non-RTO Controlled Regions.

The flood of utility scale solar projects in the U.S Southeast is accelerating a previous trend toward increased reliance on natural gas and the continued reduction of coal-fired generation. According to the Southern Alliance for Clean Energy (SACE), the region will surpass 19,000 megawatts of solar PV generation by 2022.

Southeast Solar Capacity Forecast

Similarly, Fitch Solutions Macro Research recently projected the Southeast U.S. could see about 110 GW of solar capacity additions from 2020 through 2029.

Here again, the ready availability of low-cost natural gas has led to a freefall in coal generation across the region over the past ten years.

Coal’s Share of Southeastern States’ Electricity Generation – All Sectors

The decline in coal generation has even outpaced the national trend in the past decade. By 2018, while the national average fell to 28%, in the Southeast it dropped to 22%.

The introduction of utility-scale battery storage may well be the final nail in the coffin for coal in the Southeast as declining capacity factors of coal generation decidedly turned the economics negative as many operators can no longer cover their fixed costs.

In addition to a changing power generation profile, load profiles in the Southeast also seem to be mutating.

Last month, the Southern Alliance for Clean Energy released a study, “Seasonal Electric Demand in the Southeastern United States,” that included some notable highlights:

  • While the Southeast is in a period of peak load decline, it is not easy to discern a clear trend in individual utility peak loads. Year-to-year weather fluctuations may mask a trend.
  • Trends in electric power consumption are hard to spot.  Some utilities have experienced annual growth rates exceeding 2%, while others have experienced declining loads.
  • The Southeast is now a dual peaking region due to declining summer peaks, though most peak hours still occur during the summer.

Seasonal Coincident Peaks in the U.S. Southeast (1999-2018)
Southeast Seasonal Peak Electric Demand

The confluence of a rapidly changing generation and load profiles in the Southeast will introduce new portfolio management challenges and opportunities to balance load and generation in a reliable and efficient manner.

Real Time Price Volatility Coming

The elimination of baseload generation and its replacement with an intermittent resource such as solar will increase real-time pricing volatility adding complexity to portfolio optimization decisions. Consequently, asset owners and operators will find it necessary to invest in progressively sophisticated modeling software that also incorporates insightful post analytics.

The degree of regional volatility will depend on the following factors:

  • Bilateral trading liquidity
    • Market depth
    • Number of trading counterparties
  • Varying weather patterns
  • Varying solar capacity factors in different SE states
  • Ramping capability of regional resources
  • Transmission & pipeline constraints

Under ideal conditions, regional bilateral trading opportunities occur more frequently when varying times of coincidental peak load happen across that region.

The recent SACE study details the diversity of loads in the Southeast.

Coincidence of Utility Systems with Southeast Regional Peak

The capacity factor of solar generation differs dramatically from state to state in the Southeast where heat and humidity add unique challenges and uncertainty in forecasting load demand and solar generation profiles.

The increasing regional reliance on intermittent solar resources that varies by state, in addition to the unique coincident peak loads across different sectors of the region, further adds to real-time volatility.

Finally, many people underestimate the geographic size and total load volume of the Southeast energy market. An interesting chart provided by Tyler Norris (Director, Cypress Creek Renewables) sheds some light on the comparative system peaks in the California Independent System Operator (CAISO) market and in the Southeast (see Figure 5).

Note that the “Carolinas Regulated” segment alone matches the size of CAISO. By including Florida, Southern & TVA, you begin to better understand and appreciate the sheer size and geographic diversity of the overall Southeast energy market.

2019 System Peaks – CAISO vs. Carolinas (MWac)

Portfolio Manager Objectives

A utility portfolio manager owns three simple, non-mutually dependent objectives:

  1. Minimize costs
  2. Maximize profit
  3. Do no harm to reliability

Profit = Revenue – Costs

Sometimes higher profit comes with higher cost. Costco, for example, has higher profit than Dollar General, but also higher costs. Costco definitely favors higher profit.

Some coal units are self-scheduled or, must run in RTO markets, even though LMP forecasts might be below their production costs. In some of these cases, “take or pay” contracts oftentimes force managers to make decisions to lose less money in the market versus opting for the more economically adverse choice of paying penalties to coal suppliers.

One of the key challenges in the Southeast going forward will be to:

  1. Balance load and generation with far more solar resources and;
  2. Perform the balancing function while honoring the three primary objectives of cost minimization, profit maximization and protecting system reliability.

While those objectives are clear enough, they may not be so easy to achieve.

Portfolio managers and real-time operations staff will constantly need to monitor load and solar generation profiles. Questions will need to be asked and answered quickly such as:

  • Should I keep a combined cycle available to respond to sudden solar generation drops?
  • What are the operational constraints of my gas fired plant?
  • How many peakers will be available? At what cost? How fast can they ramp up?
  • Do bilateral trading opportunities exist regionally that will serve my needs and are less costly than self-generating?
  • What gas pipeline and electric transmission constraints exist that need to be included in my decision tree?

Gas Generator Embedded Optionality

Besides the low price of fuel, the enhanced operational flexibility of a natural gas plant is the most endearing quality in this era of solar emergence. The moody nature of intermittent solar energy requires a patient and understanding partner capable of adjusting to rapidly changing generation outputs.

When the clouds come, as they will, natural gas generation steps in to quickly ramp up output. When clouds disappear, gas generation quickly bows away to ensure a reliable balance between load and generation.

In many ways, it is a marriage made in heaven.

Flexibility creates extrinsic option value and, can be captured from changes in market conditions. The goal of a portfolio manager is to optimize and monetize that flexibility.

Evaluating Constraints

When considering natural gas generator constraints, three stand out to a good portfolio manager:

  1. Ramp rates
  2. Start-up times and costs
  3. Shutdown times and costs

Porpoising gas generators, adjusting to the turbulence of solar output, will present challenges to pipeline operators. Constraints on those pipes will define who wins and who loses every day.

In a portfolio with a significant percentage of renewable and natural gas generation, pipeline constraints must be carefully considered in Day Ahead (DA) power plant commitment decisions.

The Day Ahead is just that; a plan. The real-time (RT) balancing market is where the imperfections of load and generation forecasts are handled and resolved and, where unanticipated generation and load profiles create stresses.

Co-Optimizing Gas & Power Example
Let’s look at a case in which Utility XYZ can leverage high powered analytical software to monetize the optionality of a natural gas plant. Assume that:

  • The utility owns a 500 MW natural gas combined cycle unit with a 7,000 Btu/kWh heat rate.
  • It has long-term, firm gas supply for the unit at $3.00.

Next day unit commitment initially calls for scheduling 30,000 MMBtu to the asset in order to meet load. However, an unexpected mini-polar vortex descends upon the Northeast and the spot price of gas there hits $10.

Given that the portfolio manager’s objective is to minimize cost and maximize profit, let’s consider the decision at hand.

The manager could sell the 30,000 MMBtu @ $10 in the real-time market and earn a profit of $210,000 ($10 – $3 x 30,000) on the gas position.

But what about the power needed to meet native load? Here, are two options:

  1. Replace the combined cycle power with that from another asset (i.e., light oil peaker).
  2. Execute a bilateral power replacement purchase.

If one of these can be exercised for less than $210,000, the gas up north will be sold.

If both option 1 and 2 are viable, the lowest cost option will be exercised .

Minimize cost. Maximize profit.

Making Money or Not: The Right Tools Are Required

While the above example seems simple and straightforward, we have to factor in the short fuse attached to analyzing and executing decisions such as this.

Consider in the example that, the portfolio manager ran a base case study on Monday for Tuesday, which called for the combined cycle asset to run to meet the morning peak.

The unexpected market opportunity happened very early on Tuesday morning so, a change case study was needed to determine the availability and cost of replacement power.

But, did the decision make money?

Using post analytics, the portfolio manager was able to run another study on Wednesday to compare the gas sale profit versus the actual cost of the replacement power to answer the following key questions:

  • Did the light oil peaker perform as expected at the change case prediction?
  • Did the bilateral purchase flow on the non-firm transmission?
  • Did load come in under the forecast and result in the light oil peaker not running (thus earning a larger profit)?
  • Did solar generation over or under-perform relative to forecast and how did it impact the bottom line?

Post analysis is a critical function to understand the financial impact of the RT balancing market versus the DA plan.

PCI GenTrader® Powers Optimization & Post Analytics

Making quick decisions that affect making or losing hundreds of thousands, even millions of dollars each day, requires best of breed optimization software that should fully integrate with an ETRM system.

PCI is the leading provider of portfolio optimization and planning software driven by our unrivaled GenTrader® analytical engine which supports dozens of applications including daily operational planning, fuel burn forecasting, post-analytics, transaction structuring, emission impacts and many more…

In an energy generation landscape increasingly turning toward intermittent renewable sources, GenTrader® incorporates an advanced algorithm for robust unit commitment and economic dispatch for modeling an entire utility portfolio including:

  • Thermal generation including complex combined- cycle assets.
  • Hydro, pumped storage, battery storage
  • Renewable generation
  • Market prices: power, ancillary services, emissions.
  • Complex options and forward contracts
  • Fuel constraints and energy-limited options

Post Analytics

GenTrader® provides business tools for examining past market activities and performance with the goal of improving future performance. The benefits of having this capability are many and include:

  • Automating the assessment of operational performance, as well as the segregation and allocation of costs and revenues among stakeholder.
  • Demonstrating operational prudence according to market and regulatory rules.
  • Providing historical accounts and documentation to validate future decisions.


Solar generation will introduce new portfolio management challenges in the Southeast during the new decade and, the PCI Platform is designed to ensure that your enterprise overcomes those challenges to always minimize costs and maximize profits.

Contact PCI if you have any questions for our blog authors or other subject matter experts.

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