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More active hurricane season than normal forecast, but less than 2020's record

Highlights

Power demand, prices weaker in 2020

ERCOT North forwards up on ICE

Experts differ on market implications

Houston — The National Hurricane Center on May 20 forecast a more active Atlantic hurricane season than normal as being most likely in 2021, but not as active as 2020's record-setting storm season, and power markets appear likely to take the forecast in stride.

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The forecast states that the Atlantic has a 60% chance of having an above-normal amount of tropical storm activity this season, which stretches from June 1 through Nov. 30. The forecast includes a 30% chance of near-normal activity and a 105 chance for below-normal activity.

The forecast calls for 13 to 20 named storms, six to 10 hurricanes and three to five major hurricanes. The normal levels would be 14 named storms, seven hurricanes and three major hurricanes.

"We don't anticipate the 2021 hurricane season to be as active as 2020," said Matthew Rosencrans, lead seasonal hurricane forecaster at the National Oceanic and Atmospheric Administration's Climate Prediction Center. NOAA will update its forecast in August, just before the peak of the season begins, Rosencrans said.

The Atlantic had 30 named storms in 2020, breaking the record of 28 storms set in 2005. Twelve named storms made landfall in 2020, shattering the previous record of nine set in 1916.

Market impacts

So much destruction weakened power demand, which was already diminished by the novel coronavirus pandemic. Across the thirteen coastal states stretching from Virginia to Texas, power demand was down 4.6% for the season, judging by retail electricity sales data collected by the US Energy Information Administration.

Such weak power demand contributed to power price weakness.

Electric Reliability Council of Texas North Hub day-ahead on-peak locational marginal prices during the 2020 hurricane season were down by about 58% from 2019 prices and down by 28% from the average for 2015 through 2019.

On the Intercontinental Exchange on May 20, ERCOT North Hub July-August packages were steady in the morning but rose $1.20 to about $68.25/MWh in the afternoon.

S&P Global Platts' Day-ahead Bilateral Indexes for Florida power were down during the 2020 hurricane season by about 14% from 2019 prices and down about 16% from the average for 2015 through 2019.

The 2020 hurricane season bilateral index for the Vacar pricing point was down about 16.3% from 2019 and down 23.7% from the average for 2015 through 2019.

Experts differ

Asked how the 2021 hurricane season might affect wholesale power markets, if the NOAA forecast proves accurate, Neil McAndrews, an Austin, Texas-based principal at the Enterprise Risk Consulting energy market consultancy, said, "It all depends on where a hurricane hits. It also depends on how fast it develops and how powerful it becomes. Harvey developed over just a few hours to a Category 4 [major] storm."

Even though the forecast calls for a less active hurricane season in 2021, compared with 2020, McAndrews said he would expect power prices to be weaker.

"Last year, summer temperatures were very hot, countering the recession," McAndrews said. "This year, the economy is stronger, but the temperatures are likely to be a little cooler."

In contrast, Eric Smith, associate director of the Tulane Energy Institute in New Orleans, expressed concern about scarcity in the "Gulf Coast states, particularly Texas," given "growing intermittent supply."

"While there has been some regulatory movement since the [mid-February] freeze off, there has not been much of a change in terms of adding dispatchable capacity," Smith said. "So, whether it is one storm or six, it really depends on the location of the damage and whether it involves wind damage to the grid or also includes destruction of power-producing assets of both types. ... If you want to worry about anything in this record, worry about a storm that coincides with a summer demand peak in Texas"