10 Aug 2021 | 19:04 UTC

ERCOT Tracker: Strengthening natural gas boosts July power prices on year

Highlights

Lighter loads weaken month-to-month changes

September packages up with gas forwards

Power burn may be flat on year in September

Electric Reliability Council of Texas wholesale power prices were up sharply this July compared with July 2020, mainly due to a doubling of natural gas prices and as September forwards strengthened on the same basis, albeit less dramatically due a mild weather forecast.

Day-ahead on-peak locational marginal prices averaged near $50/MWh across ERCOT's four major pricing hubs in July, up from averages in the high $20s/MWh in July 2020, but down from this June's averages ranging from about $49/MWh to about $54/MWh, according to S&P Global Platts data.

At the Houston Ship Channel, spot gas averaged $3.692/MWh in July, up from $1.698/MMBtu in July 2020 and $3.144/MMBTU this June. Waha spot gas averaged $3.559/MMBtu in July, up from $1.303/MMBtu in July 2020 and this June's $2.935/MMBtu.

Peakloads averaged 65.3 GW in July, down from July 2020's 67.1 GW but up from June's 63.3 GW, according to ERCOT data, which reflected CustomWeather population-weighted averages for cooling-degree days and temperatures.

CDDs in July were down 15.5% from July 2020's CDDs, but up 9.7% from this June. At 82.9 degrees Fahrenheit, the population-weighted average daily temperature in July was down from 86.2 degrees F in July 2020, but up from this June's 81.5 degrees F.

Generation changes

Although natural gas-fired generation had the most market share at 51% of the total fuel mix for July and it increased 4.1 percentage points from June, it slid 2.3 percentage points year on year, according to ERCOT data. Likewise, wind-powered generation decreased 3.5 points year on year and fell 5.1 points month on month to average 13.6% of the total fuel mix in July.

Meanwhile, coal-fired generation increased 3.8 points from a year ago to account for 20.7% of the mix, and solar-power generation rose 1.9 points year on year to make up 4.7% of the fuel mix, according to ERCOT data.

Last year, gas peaked for the year in July at 53.4% of the mix, while coal and wind peaked in December at 21.3% and 27.8%, respectively, according to ERCOT data. Solar peaked in May at 3%.

This July's power burn was down from July 2020, but the forecast power burn for this September is up, assuming a similar heat rate to August 2020, as the continuing strength of gas forwards boosted September on-peak power forwards in July from their levels in June.

Forwards

Looking to the future, traders may foresee upside risk for September on-peak power, as that package averaged about $56.25/MWh this July, up from June's average near $47.50/MWh and up from the $41.25/MWh that September 2020 on-peak power averaged in July 2020.

September forwards' strength likely reflects robust natural gas prices, mitigated by a mild weather forecast.

At the Houston Ship Channel, September gas averaged $3.762/MMBtu in July, up from this June's $3.326/MMBtu and the $1.80/MMBtu that September 2020 gas averaged in July 2020.

Waha September gas averaged $3.602/MMBtu in July, up from this June's $3.625/MMBtu and the $1.408/MMBtut that September 2020 gas averaged in July 2020.

With such strong natural gas prices, September power burn is likely to continue to remain weak, judging by S&P Global Platts Analytics' forecast for gas-fired generation levels of about 556.7 GWh/day. Assuming a heat rate similar to September 2020, this September's power burn would be about 4.6 Bcf/d, up slightly from September 2020's 4.5 Bcf/d.

The National Weather Service's August, September and October forecast indicates that the more-populous eastern third of Texas is likely to have near-normal temperatures during the period, while the remainder of ERCOT's footprint has a 33%-50% chance for above-normal temperatures. The forecast was issued July 15.

The forecast's near-normal to above-normal precipitation levels over that period in the ERCOT footprint would tend to ensure soil moisture levels are sufficient to absorb and mitigate excessive heat waves in September.