Fuel switching in MISO accelerates into autumn on cooler weather, high gas prices

Natural gas is losing market share in the Midwest Independent System Operator this month as cooling autumn temperatures give power generators more optionality to dispatch lower-priced fuels.

In MISO, market share for gas in the generation stack has dipped about five percentage points in September, giving way partly to wind and nuclear, but also coal-fired power, ISO data shows.

Month to date, gas has accounted for just under 26% of total power generation in the Midwest, down from levels around 31% to 32% during the peak-demand months of June, July and August.

The recent drop has been fueled partly by gains in wind and nuclear, both of which have seen their respective markets shares in MISO rise about two percentage points in September. So far this month, wind has captured about 9% of the generation stack, compared with a summer average around 7%. Nuclear has edged up to about 16% this month, compared with an average 14% in June, July and August.

Even as wind and nuclear make inroads, coal remains the dominant fuel in the Midwest with about 43% market share there, roughly at par with levels seen during the peak-demand months of summer.

Prices, demand, dispatch optionality

The recent drop in generation share for gas comes as hub prices across much of the Midwest trade into the mid- to upper-$4s/MMBtu – even experimenting with levels above $5 at some locations – giving generators there a strong incentive to idle more costly gas-fired plants as power demand wanes.

This summer, limited generation capacity appeared to keep gas afloat in generation stack in MISO and other ISOs, despite high prices. With Midwest population-weighted temperatures down about 7.5 degrees Fahrenheit this month compared to last, though, overall generation in MISO has dropped about 292 GWh this month compared to last, giving generators there more dispatch optionality.

The decline in market share for gas this month hasn't been isolated to the Midwest.

In the Southwest Power Pool, generation share for gas has also dipped in September, falling more than five percentage points this month compared with its June-July-August average, SPP data shows.

In PJM, gas power continues to account for about 37% to 38% of the generation stack this month – roughly stable since the second quarter. During the recent peak-summer months, though, much of the uptick in overall generation was absorbed by coal, with its market share growing from about 21% in Q2 to more than 26% in July and August, data from the ISO shows.

Outlook

During the upcoming winter months, the rise in overall power demand from colder weather could give gas generation a boost in MISO and other ISOs. Lower overall generation compared with the peak-summer months, though, should give generators more optionality to keep costly gas-fired plants idled.

Generators will have good reason to keep gas dispatch to a minimum this winter. At the Chicago city-gates, forwards prices for January have strengthened to over $6/MMBtu recently with peak-winter prices across much of the Midwest trading at similar levels, S&P Global Platts data shows.

Following a recent uptick in coal-capacity factors this summer, generators could be ramping up for an increase in coal-power dispatch during the peak-demands month of winter.

Recent data compiled by S&P Global Platts Analytics shows coal capacity factors climbed to about 65% in July and August up from a 58% capacity factor in June. Historical data shows that this summer's peak coal-capacity factor was its highest since summer 2019 when operating coal capacity in the generation stack was more than 30 GW higher than it is today.