Wholesale power prices are expected to significantly increase between 18% to over 200% year on year, mostly from higher fuel costs with electricity costs closely tied to natural gas prices, the US Energy Information Administration said June 16.
Não está cadastrado?
Receba e-mails diários com alertas, notas ao assinante; personalize sua experiência.Cadastre-se agora
While various factors impact wholesale power prices, fuel costs are a major driver. Power prices are closely tied to the natural gas market, which is often the most expensive generators dispatched to supply power.
"We forecast that electricity prices in the Northeast regions (ISO New England, New York ISO, and PJM markets) will exceed $100/MWh between June and August 2022, up from an average of about $50/MWh last summer," the EIA said in a June 16. "We forecast summer electricity prices will average $98/MWh in California's CAISO market and $90/MWh in the ERCOT market in Texas."
ISO New England's Internal Hub is forecast to have the largest increase at 206% year over year for June through August average prices, with Palo Verde in the Southwest the smallest at 18.3%, according to EIA data.
The extended drought in the Western US could also drive up power prices this summer.
"Although we expect a slight increase in hydroelectric generation in California this summer compared with last summer, our forecast of summer hydropower output remains relatively low," according to the EIA. "The restricted contribution of hydropower this summer will likely lead California to generate more electricity from natural gas and to import electricity from neighboring states."
Higher gas prices
The natural gas price at the Henry Hub averaged $8.14/MMBtu in May 2022, 180% higher year on year, according to the EIA, which expects the price of natural gas delivered to electric generators to average $8.81/MMBtu this summer, a jump of 124% from last summer.
A boom in natural gas prices this summer is set to be a major driver of higher wholesale power prices, especially in light of limited gas-to-coal switching in the power sector. Spot gas prices across the US have largely traded in a $7-$9/MMBtu range during May and June, a dramatic upswing from the year-ago $2-$4/MMBtu range.
In the ISO New England footprint, spot gas benchmark Algonquin city-gates has averaged $7.86/MMBtu for May and the first half of June, more than triple the $2.36/MMBtu averaged for the same time last year, according to S&P Global Commodity Insights pricing data.
Typically, spot gas prices in New England the Northeast see the most buoyancy during the winter demand months. However, above-average temperatures have helped propel prices higher during months that have historically seen more lackluster pricing.
In the past, the power sector switched from natural gas-fired generation to coal-fired generation when gas prices spiked. However, less coal plants have responded in recent months, likely due to continued coal retirements, constraints in fuel delivery to coal plants and lower-than-average stocks at coal plants, according to EIA.
"We forecast that the share of US generation from coal-fired power plants will decline from 25% last summer to 23% this summer, and natural gas's share will remain relatively constant at 40%," the EIA said.
US power sector coal inventories were 29.7% lower than the year-ago period in March at 86.2 million st, according to EIA data released in June. Lower coal stocks have had a bullish impact on domestic over-the-counter coal prices, especially as producers field new inquiries from export customers amid the Russia-Ukraine war.
Some global coal end-users are interested in the same US coals as domestic utilities. The increased demand has pushed prices higher. For example, domestic Illinois Basin 11,500 Btu/lb coal is barged down the Mississippi to the Gulf of Mexico before traveling on vessels to markets in Asia and EMEA.
Prior to Russia's invasion of Ukraine, the Platts assessment for prompt-month ILB barge coal was $88.15/st. Buoyed by low stocks and soaring global demand, the ILB domestic barge coal price has risen 76% to the most recent Platts-assessed price at $155.15/st.
In addition to increased competition from export markets for the same tight US coal supply, domestic coal-fired utilities also must contend with slow rail cycle times. According to one US coal producer, low rail capacity has prevented power plants from receiving long-term contract deliveries. Rail performance issues have prevented utilities from rebuilding stockpiles and the reduced supply also has supported higher domestic coal prices.