US POWER TRACKER: SPP forwards trend lower on gas forwards, weather forecast

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Southwest Power Pool forwards for September are more than 60% below year-ago packages, being pulled down by lower gas forwards and mild weather, as spot power prices also follow lower spot gas prices.

Coal-fired generation returned to the top of the fuel stack in July after a 10-month hiatus, as wind stalled on seasonality. So far this year, wind has accounted for about 38% of market share, follow by coal at nearly 27% and gas-fired generation at roughly 26%.

"The short-term forecast has coal providing the largest share of generation through September with wind taking over during Q4," said Morris Greenberg, senior manager with the low-carbon electricity team at S&P Global Commodity Insights.

Coal climbs in fuel mix

After leading in market share in June, gas-fired generation decreased 1 point month on month to average 33.3% of the total fuel mix in July, an increase of 4.4 points from a year ago, according to SPP data. Wind-powered generation averaged 24.5% of mix, after leading the fuel mix from October through May.

Coal-fired generation took over the lead in market share, averaging 33.8% of the total fuel mix in July despite falling 5.7 percentage point year on year, according to SPP data.

SPP sources its coal from Wyoming's Powder River Basin near the northwest corner of its footprint, SPP said in its 2022 Annual State of the Market Report. Powder River Basin coal prices typically are the lowest among US utility coals due the fuel's high supply and logistical isolation, which tends to disconnect PRB coal from higher priced export markets.

The price for PRB 8,800 Btu/lb coal averaged $14.30/st in July, down 0.4% from June and 14.1% lower than a year-ago, according to the Platts assessments by S&P Global.

PRB 8,800 Btu/lb closed at $14.30/st Aug. 4, demonstrating PRB coal's ongoing price stability. The coal hasn't seen a price change since the June 22 session, when it dropped 5 cents on the session to its current $14.30/st level.

The PRB typically produces a subbituminous coal. Energy Information Administration data released July 25 showed that power sector subbituminous coal stocks were above a two-year high of 78.9 million st in May, which was 13.3% higher than the five-year average. High stocks continue to put downward pressure on PRB coal prices.

Forwards curve

Power forwards continue to trend well-below year-ago packages, following weaker gas forwards, as well as milder weather forecasts.

South Hub on-peak August rolled off the curve at $49.05/MWh, 78% lower than where the 2022 package ended a year ago, according to data from Platts, part of S&P Global. On-peak September is currently in the low $40s/MWh, about 61% below where the 2022 package was a year ago, while on-peak October is in the mid-$30s/MWh, 54% lower.

The Panhandle Texas-Oklahoma August contract rolled off at $2.034/MMBtu, 75% below where its 2022 counterpart ended. The September contract is currently around $2.184/MMBtu, a 70.5% decrease compared to the 2022 contract a year ago, while October is around $2.279/MMBtu, 69% lower.

"Forwards should reflect something like the expected value of the underlying asset, in this case spot prices, for the relevant block," Greenberg said. "We have seen some weakness in weather-adjusted loads in SPP South and Central in recent months, which could have had a negative impact on prices."

The three-month outlook indicates equal chances for above-normal and below-normal temperatures across most of the SPP footprint, according to the US National Werther Service's Climate Prediction Center. A small portion of the southern region is expected to have higher chances for above-normal temperatures, while a spot in the central eastern area has a higher probability for below-normal temperatures.

Gas plants burned an average of 1.983 Bcf/d in July to generate an average of 168.697 GWh/d, an analysis of S&P Global data shows. That's up about 10% month on month and 3% higher year on year.

S&P Global forecast SPP's gas fleet to generate around 213 GWh/d in September. In comparison, burning fuel at the same rate as September 2022 would consume 1.3877 Bcf/d, a 28% increase year-on-year.

Spot market

In the spot market, SPP South Hub on-peak day-ahead averaged $44.56/MWh in July, 62.7% lower year on year, according to SPP data.

Spot gas at Panhandle Texas-Oklahoma averaged $2.178/MMBtu in July, down 9% month on month and a drop of 67.5% compared to a year ago, according to pricing data from Platts.

In addition, SPP peakload averaged 45.9 GW in July, 5.3% lower than a year ago, but up 10% from June on rising temperatures heading into peak summer season. Population-weighted temperatures across the SPP footprint were 2% lower than last year, causing 9.4% less cooling-degrees days, according to CustomWeather data.

Total generation was down 6% year on year to average 38 GWh/day for July, according to SPP data.