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PJM Interconnection wholesale power prices are expected to be much lower this summer on year based on forward power and natural gas prices, with on-peak power prices at PJM Western Hub projected to average around $43.60/MWh in 2023, according to S&P Global Commodity Insights power market analysts.
West Hub on-peak forward power prices appear set to be considerably lower this summer on year with the summer strip of June, July, and August averaging $49.37/MWh compared with an average of $145.43/MWh for the corresponding months in 2022, a 66% decline, according to Platts M2MS data. Forward natural gas prices were down by 74%-79% in May trading.
"Overall power prices are likely to increase in July-August compared to May as they normally would in the summer peak (provided we get a normal hot summer)," Bill Dugan, director of congestion management for the US Northeast at Customized Energy Solutions, said in a June 6 email.
"Directionally, [power] prices this summer are likely to be well below last year given where natural gas is year over year (considerably lower than 2022)," Dugan said.
Platts Transco Zone 6 Non-New York forward gas prices for June, July, and August 2022 averaged $7.50/MMBtu in May trading, compared with an average of $1.82/MMBtu for the same months in 2023.
The average July 2022 forward gas price at the hub was $7.59/MMBtu compared with an average of $1.92/MMBtu in July 2023, a decline of about 75%.
On the power market side, the PJM West on-peak forward price for July averaged $56.18/MWh in May trading, compared with an average of $169.56/MWh in July 2022.
Regarding PJM power market design changes to watch in June, "the main market design issue to watch is the approval of the capacity market changes/auction delay, which will impact all subsequent auctions," Dugan said.
PJM continues to wait on the Federal Energy Regulatory Commission for approval of its requested capacity auction delay for the 2025-26 year, scheduled for June, the S&P Global power market analysts said. PJM had hoped to delay this auction until June of next year, forcing market participants to begin to plan for an auction this month, given the uncertainty, the analysts said.
Summer, longer-term reliability
PJM said it has sufficient capacity to meet forecast summer power demand but could need to deploy demand response under certain conditions, and generator retirements are not being replaced with similar volumes of capacity, potentially impacting reliability going forward.
Coal-fired power plants have been retiring across the PJM footprint and they are mostly not being replaced by thermal resources with similar capacity factors, which has been raising reliability questions going forward.
One of the key challenges facing the power market is the "high level of expected resource retirements between now and 2030 with no clear source of replacement capacity," Monitoring Analytics, PJM's independent market monitor, said in its first quarter state of the market report that was released in May.
Coal-fired power generation accounted for 12.2% of PJM's May fuel mix, which was down from 14.9% in April and 18.8% in May 2022, according to ISO data.
Gas-fired power accounted for 42.3% of the PJM generation mix in May, up from 40.4% in April and 36.4% in May 2022. And nuclear power accounted for 36.3% of the May fuel mix, up from 34.7% in April and 35.5% in May 2022.
Texas Eastern city-gate spot gas prices dropped by about 81% in May, declining from $7.35/MMBtu in May 2022 to an average of $1.43/MMBtu in May 2023.