ERCOT Tracker: Wind output tops gas to push March power prices lower on year

Houston — The Electric Reliability Council of Texas' wind output topped natural gas generation in March, 38.4% to 30.2%, for the first time on record, and contributed to day-ahead on-peak prices averaging significantly below March 2020 levels, despite the pandemic's stronger effect on March 2020 power demand.

However, significantly lighter loads contributed to wind's winning share in March, and natural gas is likely to resume its lead over the summer, Giuliano Bordignon, an S&P Global Platts Analytics analyst, said April 8.

Day-ahead on-peak locational marginal prices averaged in the low- to mid-$20s/MWh this March in every hub except Houston Hub, where the average was around $30/MWh, according to S&P Global Platts' price database. Thus, the year-on-year change was down between 14.4% and 26.5% across most of the state and up just 2.3% in the Houston Hub, which has a denser population and usually has the state's highest average.

It should be noted that among the eight independent system operators or power market regions included in Platts' monthly Power Trackers, ERCOT was the sole ISO to show an overall year-on-year average decrease.

The difference for Houston may also partly be explained by higher gas prices in the region. Houston Ship Channel spot gas averaged $2.416/MMBtu this March, above Waha's $2.322/MMBtu. In March 2020, Houston Ship Channel gas averaged $1.69/MMBtu and Waha averaged 41.1 cents/MMBtu.

Generation mix

With such high gas prices, the gas generation fleet's share this March, at 30.2%, was down from this February's 45.7% and March 2020's 44.4%, according to ERCOT data released late April 7.

The coal-fired fleet's share was also down, to just 14.8% this March, compared with 19.1% this February and 15.7% in March 2020.

In contrast, wind and solar's shares were up substantially on the month and year. The wind fleet's 38.4% this March was up from this February's 20.6% and March 2020's 26.1%. The solar fleet's 4% this March was up from this February's 2.3% and March 2020's 1.6%.

The relatively light loads this March, with peakloads averaging less than 40.9 GW, allowed such renewables to displace the thermal fleet in the stack. Peakloads averaged 48.5 GW in February, which featured among the worst winter storms on record, and averaged 43.1 GW in March 2020.

Wind output was "very strong" in March, but occurred "at a time of relatively weak loads," said Bordignon, a power market analyst at Platts Analytics.

"This acted as a double squeeze on the thermal gap and is the main reason of low gas generation – the lowest for March since at least 2012," he said in an email.

"But if we assume a return to normal wind load factors in the months ahead, and loads also converging to pre-pandemic levels, we still expect the average on-peak implied heat-rate to peak above 18,000 Btu/kWh in August," Bordignon said. "This is in line with last year's level, the second highest for the month since 2013 and behind only the record level of more than 170,000 Btu/kWh set during the heatwave of August 2019 (which continued into September)."

The weather was a factor in this March's peakload decrease. Population-weighted average total heating- and cooling-degree days were down 68.8% from this February but up 3.5% from March 2020, according to CustomWeather data. Population-weighted average low temperatures were 50.5 degrees Fahrenheit this March, up from February's 34.8 degrees F but down from March 2020's 57.2 degrees F.

Forward markets

The weather may also be a factor in the relative strength of May on-peak power forwards, which have trended upward on the month and year. ERCOT North May on-peak power averaged around $30.75/MWh this March, up 5.9% from this February's average of around $29.05/MWh and up 13.7% from the $27.05/MWh that the May 2020 package averaged in March 2020.

The National Weather Service's April-May-June forecast, released March 18, indicated high probabilities – from 50% to 70% -- for above-normal temperatures across Texas. The weather service also forecast a greater than 40% chance for below-normal precipitation across almost all of the state during this period.

May gas forwards were also up substantially on the year, but down from this February. Houston Ship Channel May gas averaged $2.622/MMBtu this March, down 8.8% from this February's $2.875/MMBtu but up by more than 51% from the $1.736/MMBtu that May 2020 gas averaged in March 2020.

Waha May gas averaged $2.429/MMBtu this March, down about 6% from this February's $2.585/MMBtu but about 5.5 times the 44.2 cents/MMBtu that May 2020 gas averaged in March 2020.