PJM Tracker: Warmer weather, higher gas prices boost power prices in July

PJM Interconnection power prices increased by nearly 70% in July on year at some pricing hubs as natural gas prices more than doubled from year-ago levels and power demand increased by 7.2% on month.

PJM East Hub day-ahead off-peak locational marginal power prices increased by 69.7% from July 2020 to average $25.60/MWh in July 2021, according to PJM data compiled by S&P Global Platts.

Day-ahead off-peak prices at the hub increased by 25.9% in July month on month.

The highest average power prices during July were in the AEP-Dayton Hub where day-ahead on-peak prices averaged $43.05/MWh, a 41.4% increase from July 2020 and 13.3% higher than June.

Day-ahead on-peak power prices at PJM West Hub averaged $42.39/MWh in July, an increase of 37.8% from July 2020 and 18% higher than June.

Chicago city-gate spot natural gas prices averaged $3.61/MMBtu in July, a 115.8% increase from July 2020 when gas prices at the hub averaged $1.67/MMBtu. Chicago city-gate gas prices were 15.5% higher on the month in July.

Platts Texas Eastern M-3 gas prices were up 91.2% from year-ago levels in July to average $3.25/MMBtu during the month. Gas prices at the hub were 28.1% higher on month in July.

PJM peak load averaged 124,441 MW in July, a 7.2% increase from June, but 6.7% lower than July 2020 when PJM peak load averaged 133,428 MW due mostly to hotter weather despite coronavirus pandemic lockdown impacts that generally lowered power demand.

The average high temperature across the PJM footprint in July was 84.3 degrees Fahrenheit, a slight increase from the June average high of 82.5 degrees F. The higher temperatures increased cooling degree days in July, which averaged 10.9 compared with an average of 8.7 in June.

The average high temperature in July 2020 was 87.9 degrees F when cooling degree days averaged 14.2%.

Power generation fuel mix

Natural gas took market share from coal in July with gas-fired power generation accounting for 37.9% of the fuel mix, while coal-fired power supplied 26.8% of PJM's electricity.

Gas-fired power generation was up from 36.7% of the fuel mix in June and coal-fired generation also increased on month in July from 24.9% of the power supply in June.

Nuclear power output was up slightly month on month in July to average 29.3% of the generation mix.

Hydropower increased in July to account for 1.9% of the fuel mix compared with 1.8% in June, and wind power decreased in July to average 1.4% of the generation mix compared with 2.4% in June.

Forward markets

Forward power and gas prices increased in July trading with forward gas prices rising the most.

Power forwards were up by about 11% to 13% on month in July. The PJM West Hub on-peak August package averaged $43.32/MWh in July, an 11.6% increase from June. Further along the curve, forward prices were slightly lower, with September averaging $41.96/MWh and October averaging $38.90/MWh.

Year over year, PJM West Hub forward power prices increased by about 50%.

On-peak forward power prices at Northern Illinois Hub for August averaged $42.38/MWh in July trading, a 12.6% increase from June and 59% higher than year-ago levels.

Platts Transco Zone 6 non-New York forward gas prices for August were up 100.1% year on year in July trading to average 3.24/MMBtu. Forward gas prices at the hub heading into shoulder season were a bit lower, with the September package averaging $2.66/MMBtu and October averaging $2.62/MMBtu.

"While upside to demand (which is currently forecast to be 9% and 3% lower year on year in July and August, respectively, assuming normal weather) will certainly pose upside to gas burns, we anticipate that continued restrictions on TETCO to limit upside to gas prices," S&P Global Platts Analytics said in a recent research note.

PJM energy market prices are expected to increase slightly in September when fast-start pricing goes into effect. PJM had to update its software to implement the fast-start pricing changes and has been closely watching the impacts prior to the changes going live.

The average increase to energy LMPs over the past three months has been $1.60/MWh, according to PJM.