West Tracker: Power prices plunge on abundant Northwest hydro supply

Houston — US Western wholesale power prices plunged year on year in November as strong precipitation kicked off the new water year in the Pacific Northwest, increasing flows into California and reducing purchases from the Desert Southwest.

West power forwards reversed in November after trending higher in October as the three-month outlook forecast stronger probability for above-normal temperatures across California and the Southwest, but showed below-normal to equal chances for above or below-normal temperatures in the Northwest, according to the US National Weather Service.

Seasonal weather changes

Temperatures across the California Independent System Operator footprint averaged 59 degrees Fahrenheit in November, down 15.7% month on month, leading to significantly more heating-degree days, according to CustomWeather data. Cal-ISO peakload averaged 27.195 GW in November, down 14% from October, according to ISO data.

In the Northwest, Bonneville Power Administration peakload averaged 7.206 GW in November, down 6.1% year on year, but a jump of 12.5% month on month, according to BPA data. Temperatures across the BPA footprint fell 16.7% month on month to average nearly 45 F as heating-degree days jumped 82.4% month on month, according to CustomWeather data.

The Pacific Northwest had a strong start to the water supply forecast year, which kicks off Oct. 1, with The Dalles averaging 102% of normal in November, according to NWS data. Portland precipitation totaled 9.96 inches in November, up from 4.52 inches in October and 2.2 inches a year ago, according to NWS data.

Generation mix changes

The increased precipitation helped BPA hydro generation remain the lead fuel source at 77% of the total fuel mix in November, up 2.4 percentage point year on year and an increase of 11.9 points month on month, according to BPA data.

"This displaced gas generation and allowed higher flows to California," said Morris Greenberg, S&P Global Platts senior manager of North America power analytics.

Thermal generation dropped 5.4 points from October and was down 3.8 points from 2019 to average 5.2%, according to BPA data.

In California, thermal generation remained the lead fuel source and jumped 7.2 points year on year to 43.2% of the total fuel mix, while most other fuel sources decreased from year-ago levels, according to ISO data.

"Increased supply from the Northwest allowed California to reduce purchases from the inland Southwest, resulting in downward pressure on those markets," Morris said

Spot price impacts

The increase in Cal-ISO gas generation came as SoCal spot gas prices dropped 14.3% year on year to average $4.026/MMBtu in November, according to S&P Global Platts pricing data. In the Northwest, Sumas spot gas plunged 21% year on year to average $3.251/MMBtu.

Power spot prices were down across the Western US, but the biggest drop occurred at Palo Verde where on-peak day-ahead averaged $28.06/MWh and sank 44% month on month, the biggest drop across the nation in November, according to Platts data. Milder weather after lingering summer heat helped pull down prices as Phoenix average temperatures fell 12% month on month, according to NWS data.

The increase in cheap hydro in the Northwest pulled down Mid-C on-peak day-ahead 27.5% year on year to average $26.77/MWh.

Forward curve falls

Western power forwards fell below year-ago packages in November after trending higher for several months.

Mid-C on-peak December averaged $38.79/MWh, sinking 21.7% month on month and falling 15.1% from the December 2019 average a year ago. Mid-C prices fell as low as $34.75/MWh toward the end of the month, the lowest level since January, according to Platts data. The 2020 package rolled off the curve at $36.85/MWh, 21.6% lower than where its 2019 counterpart ended.

Mid-C on-peak January averaged $37.75/MWh, down 19.22% month on month and down 6.7% from the year-ago package, while February averaged $34.17/MWh, a decrease of 17% month on month and down 5% from the 2020 package.

Lower forwards could be from a re-evaluation of loads given recent weakness in the Northwest and possible COVID restrictions, in addition to higher hydro, which could linger through January, Morris said.