US POWER TRACKER: SPP spot prices tumble on weak gas prices, mild weather

Southwest Power Pool spot prices tumbled in February on weaker natural gas prices from lower fuel costs as milder weather led to decreased demand, while summer load is expected to be 6% higher this year.

The three-month outlook shows greater probability for above-normal temperatures across the northern portion of the SPP footprint and equal chances for above- and below-normal temperatures across the majority of the region, according to the US National Weather Service's Climate Prediction Center. The milder weather outlook is pulling down power forwards.

SPP South Hub on-peak March rolled off the curve at $21.70/MWh, 25.4% below where the 2023 package ended, according to data from Platts, a part of S&P Global Commodity Insights. The April package is currently in the mid-$20s/MWh, nearly 10% below where its 2023 counterpart was a year ago, while the May package is in the low $30s/MWh, 5% above the 2023 package a year ago. In contrast, both packages in January averaged about 17% above their 2023 counterparts.

Meanwhile, gas forwards are trending much lower than year-ago contract. Panhandle Texas-Oklahoma March rolled off the curve at $1.357/MMBtu, 36.4% below where the 2023 contract ended, according to Platts data. The April contract is currently around $1.568/MMBtu, 29.6% below its 2023 counterpart a year ago, while the May contract is about $1.669/MMBtu, 27.8% lower.

Milder weather leads to load decrease

Population-weighted average temperatures in SPP were nearly 21% higher than normal at around 47 degrees Fahrenheit, according to CustomWeather data. That's an increase of 57% month on month, but down nearly 6% from a year ago.

Milder weather led to a 13.3% month-on-month decrease in SPP peakload, which averaged 33.05 GW in February.

"Looking ahead to summer, weather-adjusted electricity demand is projected to increase 6% compared to last summer's levels," S&P Global said in its latest North American Electricity Short-term Forecast. "Actual demand may be higher than projected since preliminary weather forecasts indicate temperatures are leaning toward above normal for parts of the region this summer."

Spot prices tumble

Spot prices, similar to forwards, tumbled on lower gas prices and milder weather.

SPP South Hub on-peak day-ahead averaged $16.65/MWh in February, tumbling 72.9% from January and 38.8% a year ago, according to SPP data. Prices reached a 34-month low of $4.58/MWh Feb. 16, as wind-powered generation market share spiked to 59.3% of the total fuel mix.

Natural gas spot prices at Panhandle Texas-Oklahoma averaged $1.417/MMBtu in February, a drop of 32.5% from a year ago and 73.5% from January, according to Platts data.

The drop in gas prices came as the share of gas in the fuel mix increased 3.3 percentage points from a year ago to average 23.8% of the fuel mix "owing to lower fuel costs, according to the North American Electricity Short-term Forecast. Wind remained the lead fuel source at 47.7% of the fuel mix, little changed from a year ago, according to SPP data.

With more gas in the mix, coal-fired generation fell 3.9 points from a year ago to make up 19.2% of market share.

Gas plants burned an about 1.320 Bcf/d in February to generate an average of 175.618 GWh/d, an analysis of S&P Global data shows. That's down nearly 16% from January, but up nearly 17% from last year.

S&P Global forecasts SPP's gas fleet to generate around 99.356 GWh/d in April. In comparison, burning fuel at the same rate as April 2023 would consume 0.830 Bcf/d, down roughly 34% year on year.