Houston — Southwest Power Pool South Hub power prices increased 8.8% year on year in December, following rising gas prices on colder weather, as wind-powered generation became the lead fuel source for 2020, a first for any US power grid.
Receive daily email alerts, subscriber notes & personalize your experience.Register Now
"This is historical for both SPP and [Regional Transmission Organizations/Independent System Operators] nationwide," SPP spokeswoman Meghan Sever told Platts Jan. 11 about the wind milestone. "We expect renewables growth to continue as more renewable energy projects enter our generator interconnection queue."
Wind tops coal for 2020
Wind-powered generation became SPP's lead fuel source for 2020 after battling with coal-fired generation for more than a year. Wind averaged of 31.9% of the total fuel mix in 2020, up nearly 4 percentage points year on year, compared to coal at 30.6%, down 4 points from 2019, according to SPP data.
"The reliable dispatch of cost-effective renewable (wind, solar and storage) energy to meet demand has seen a massive increase over the last several years in the SPP region," Sever said. "Specifically, wind generation capacity in our footprint has grown exponentially."
In 2009, there was 3 GW of wind installed in SPP and by 2020 that number had grown 767% to more than 26 GW, Sever said.
Before the year ended, coal reclaimed the top spot in December, accounting for 37.2% of the fuel mix, up 7 percentage points from November and an increase of 5 percentage points from 2019, as wind slipped to 34.3% of the fuel mix, down 6.7 percentage points month on month, but up 2.9 percentage points year on year.
Natural gas-fired generation made up 19.2% of the total fuel mix in December, down 5.6 percentage points year on year.
Power follows higher gas prices
The drop in gas generation came as Panhandle Texas-Oklahoma spot gas spiked 36.9% year on year and increased 5.1% month on month to average $2.368/MMBtu in December, according to S&P Global Platts pricing data.
"In addition to year-on-year increases in wind generation, year-on-year growth to gas prices led to gas-to-coal switching, a trend we expect to see through most of 2021," said Jahnavi Nadipi, an analyst covering North American power markets at S&P Global Platts.
Higher gas prices helped drive up power prices.
SPP South Hub on-peak day-ahead locational marginal prices averaged $22.94/MWh in December, up 8.8% year on year, and on-peak real-time rose 13% to average $20.73/MWh, according to SPP data.
South Hub prices ranged from a record low of negative $4.33/MWh for Dec. 22 delivery to a monthly high of $37.04/MWh for Dec. 15, which followed low wind generation during peak load hours and led to an increase in gas-fired generation that fueled higher power prices, Nadipi said.
Colder weather also helped drive up power prices as heating-degree days rose 8.3% year on year after average temperatures dropped 5.2% to 38.2 degrees Fahrenheit for December, according CustomerWeather.
Forward curve trending down
Power forwards continued to trend lower month on month as the US National Weather Service three-month forecast indicated a greater probability for above-normal temperatures in SPP's southern region, but greater probability for below-normal temperatures across North Dakota the northern part of South Dakota.
SPP North Hub on-peak January dropped 9.7% month on month to average $26.35/MWh in its last month, according to Platts data. The January package rolled off the curve at $22.85/MWh, the lowest level since April 2018 and 6.7% lower than where the 2020 package ended a year ago.
North Hub on-peak February averaged $25.95/MWh in December trading, down 9% month on month, but up nearly 3% from where the 2020 package averaged a year ago. February reached a 33-month package low of $23.52/MWh on Dec. 28. The on-peak March package averaged $23.55/MWh, up 3% month on month and less than 1% higher from the year-ago package.
Power forwards followed lower gas forwards on the month.
Panhandle Texas-Oklahoma January fell 13.5% month on month to average $2.393/MMBtu in its last month, and rolled off the curve at $2.317/MMBtu, which was still 40% higher than where the 2020 contract ended a year ago, according to Platts data. The February contract averaged $2.373/MMBtu, down 13.3% month on month, but up 26.6% from the 2020 contract a year ago, while the March contract averaged $2.321/MMBtu, down 11.8% month on month, but up 36% from its 2020 counterpart last year.