Analysis: Seasonal wind, higher gas prices to cut SPP market share for gas in September

New York — Market share for natural gas in the Southwest Power Pool will likely continue trending downward over the next month as stronger wind output and higher gas prices push the fuel out of SPP's generation stack.

In August to date, market share for gas in SPP has already begun its decline, falling nearly 4 percentage points from its July average to just under 31% this month, data compiled by S&P Global Platts showed.

Lower market share for gas can be attributed in part to a recent, seasonal uptick in wind speeds across SPP, which typically accelerate into autumn following a midsummer slowdown in July.

Higher gas prices play a role as well, though.

At SPP's most actively traded gas hubs, prices have risen sharply in August. Earlier this month, the higher fuel cost cut the coal vs. gas $/MWh fuel cost ratio in SPP to below 1 – a critical threshold that signals lower power generation cost for coal compared with gas.

Autumn winds

Across the Midwestern Plains states that make up SPP, market share for wind is on the rise recently, averaging about 22.5% over the past 14 days – up from 19.4% in the final two weeks of July.

Over the past five years, market share for wind in SPP has gained nearly 7 percentage points from August to September as seasonal wind speeds accelerate into autumn.

In 2019, wind made up over 28% of SPP market share in September, compared with an average 18% in August. Over the same two-month period, market share for gas fell about 6.5 percentage points to an average 27.3% of SPP's generation stack in September, Platts data showed.

Assuming the same seasonal pattern continues this year, gas is likely to cede at least some of its market share to wind generation over the next four to five weeks.

Coal vs. gas

Rising gas prices are another factor likely to drive lower market share for gas in SPP next month.

At the NGPL Midcontinent hub, cash prices have averaged nearly $2/MMBtu over the past two weeks, up about 29% from an average $1.55/MMBtu in the final two weeks of July. Similar gains have been recorded at other nearby Midcontinent hubs within SPP. including Oneok and Panhandle Tex-OK.

As market share for more costly, gas-fired generation has begun declining in SPP in August, coal appears to be capturing at least some of that market. In the past two weeks, generation share of coal in SPP has edged up to about 39% compared with 38% in the final two week of July.