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

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.