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March power and gas prices point to diminished natural gas advantage YOY

Energy market movements point to a diminished year-over-year advantage held by gas-fired generators over coal-fired generators in key U.S. power markets in March, as wholesale power markets failed to keep pace with a doubling in natural gas prices in spite of higher demand for electricity.

Government data shows a significant shift away from gas-fired generation in December 2016 and January, with the price of natural gas playing a significant role.

During March, U.S. average day-ahead market on-peak power prices were 41.5% higher year over year across the country but failed to crack $30/MWh as they were held down by western U.S. markets. The Midwest and Northeast markets saw both the highest power prices and largest year-over-year increases as natural gas prices more than doubled at some markets.

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Across the U.S., spot natural gas prices at hubs serving generators climbed 83.5% year over year to $3.074/MMBtu during the month. PJM saw prices nearly double to $3.065/MMBtu, while NYISO and ISO New England saw prices more than double to $3.502/MMBtu and $3.910/MMBtu, respectively.

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Spark spreads fell across the board. PJM and ERCOT, both regions with a significant installed coal-fired capacity, saw implied heat rates, or the efficiency rate at which the market cost of power equals the cost of burning natural gas to generate power, decline 37.1% and 20.8%, respectively, against a U.S. average of 22.9%.

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At the same time, coal-fired implied heat rates improved nearly across the board as they climbed on a nationwide basis between 15.9% and 36.8% depending upon the type of coal burned.

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The narrowing of the advantage held by gas-fired generators comes as year-over-year electricity demand increased in all parts of the country except for California. PJM saw average load climb 7.5% year over year, while ERCOT saw average demand climb 6.8% over the same period, with peak demand growth exceeding average demand growth in both regions.

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Market prices and included industry data are current as of the time of publication and are subject to change. For more detailed market data, including power, natural gas and coal index prices, as well as forwards and futures, visit our Commodities pages.