PJM Tracker: Power prices follow lower gas prices despite colder weather

Houston — PJM Interconnection wholesale power prices dropped an average of 11.2% year on year in October, following lower power demand and weaker spot gas prices, and not correlating with colder weather that normally drives up prices.

In addition, power forwards followed lower gas forwards with on above-normal weather expected in the coming months.

Peakload averaged 83.967 GW in October, down 4.6% year on year and a decrease of 14% month on month, according to PJM data. Average temperatures across the PJM footprint in October were 3% lower year on year leading to 13% more heating-degree days compared to a year ago, according to S&P Global Platts Analytics data.

Spot prices follow gas

Pulling down power prices, TETCO M-3 spot gas averaged $1.216/MMBtu in October, down 18.5% year on year, according to S&P Global Platts pricing data.

"Gas prices in PJM have come off significantly with limited outflow options, demand weakness due to mild temps and increased production in anticipation of stronger winter prices," said Kieran Kemmerer, Platts North American power analyst. "This in turn created a severe imbalance in regional supply/demand, causing gas prices to crater to force some production to shut-in temporarily."

AD Hub had the biggest year-on-year drop as on-peak day-ahead locational marginal prices shed 16% to average $24.74/MWh in October, as on-peak real-time dropped 20.2% to average $25.75/MWh, according to PJM data.

"In addition to weakness in gas price, year-on-year declines in October PJM power prices were also exacerbated by abnormally high prices seen in 2019, driven by shortage pricing, congestion, and outages," Kemmerer said.

Spot prices increased month on month on cooler weather, with the exception of Eastern Hub where on-peak day-ahead LMP decreased 3.2% to average $17.35/MWh.

Fuel mix changes

This allowed PJM gas-fired generation in October to capture very high levels of fossil-fired market share, pushing daily average coal-fired generation below 10 GW on multiple occasions and keeping power price upside limited, Kemmerer said.

Natural gas-fired generation remained the lead fuel source at 39.5% of the total fuel mix in October, an increase of 1.3 percentage points year on year according to PJM data.

Coal-fired generation shed 2.5 percentage points year on year to average 16.5% of the fuel mix in October.

Gas and coal generation both fell month on month, down 1.5 percentage points and down 1 percentage point, respectively, while wind-powered generation rose 1.3 percentage points to average 3.8% of the market share for the month.

Forwards trending lower

Power forwards followed gas forward price movements as three-month outlook indicates greater probability for above-normal temperatures, according to the US National Weather Service.

PJM West Hub on-peak November averaged $28.59/MWh, down 5.6% from where the 2019 package averaged a year ago, according to Platts pricing data. The 2020 package rolled off the curve at $28.95/MWh, nearly 11% below where the 2019 package ended despite increasing nearly $2 from the beginning of the month.

PJM West Hub on-peak December averaged $33.23/MWh, a decrease of 11% from its 2019 counterpart last year at the same time, while on-peak January averaged $44.54/MWh, a drop of 17.2% from the 2020 package average a year ago, according to Platts pricing data.

Transco Zone 6 Non-NY November averaged $2.314/MMBtu, up 11% from where the 2019 contract averaged a year ago, according to Platts pricing data. The 2020 contract rolled off the curve at $2.006/MMBtu, falling 23.4 cents from the beginning of the month and was 17.4% lower than where the 2019 contract ended.

The December contract averaged $3.566/MMBtu, 5.6% below its 2019 counterpart last year, while January averaged $5.037/MMBtu, down 15%.