The North American power pricing team takes a coast-to-coast look at the US electric power landscape, including forecast demand, generating capacity and prices for ERCOT, Cal-ISO and the PJM Interconnection. Kassia Micek, Charles Noh and Jeff Zhou evaluate how the power markets are shaping up as hot weather and high demand start to set in.
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Some US power prices higher than last year as summer approaches
KASSIA: Renewables are clouding the West, Texas demand is soaring, and the largest US grid operator appears to have ample generation as things start to heat up for summer.
Welcome to the Commodities Spotlight Podcast from S&P Global Platts. I’m Kassia Micek, with the Platts North American power pricing team, based out of the Platts Houston office. And I’m joined by my two colleagues.
CHARLES: I’m Charles Noh, with the Platts North American power pricing team in Houston.
JEFF: And I’m Jeff Zhou, also based in the Plats Houston office and covering North American power prices.
KASSIA: Today, we’re going to discuss how the US power markets are shaping up for summer. We’ll start in Texas and if everyone remembers last summer, it was hot and demand soared. So Jeff, how's Texas looking this year?
JEFF: Well, down here in Texas, this year could be much like last year as we could see another year of soaring electricity demand.
ERCOT, which manages about 90% of the state’s electric load, recently put out its summer outlook which called for power demand near 73 GW.
If ERCOT reaches this level, it would beat the previous record set last summer on August 11 by 2 GW.
CHARLES: So what about generation resources? Does the market have enough capacity?
JEFF: Barring any outages, the Texas grid operator expects to have plenty of generation capacity to meet summer cooling needs.
Total available generation capacity, according to ERCOT, is estimated at nearly 82 GW, leaving the reserve capacity at around 9 GW.
Even under the most extreme scenario, ERCOT expects capacity to still exceed demand by around 2 GW.
CHARLES: What does this all mean for prices? How is the ERCOT market shaping up ahead of the heat?
JEFF: ERCOT North Hub July-August on-peak power package prices have averaged in the low $50s/MWh this month.
This is well above where spot markets were valued last summer.
KASSIA: Besides the anticipation of strong demand, any other factors influencing power prices?
JEFF: Yes, putting some upward pressure on power prices appears to be a rise in the natural gas markets.
CHARLES: Now let’s shift from the Lone Star state to the Wild West. Kassia, what are you seeing in the California market?
KASSIA: In the West this year, winter precipitation set up sizeable mountain snowpack, which should to translate into strong hydro generation throughout summer.
So far this year, we have seen near record levels for hydro generation in parts of the west.
JEFF: What is that doing to power prices?
KASSIA: The strong hydro generation, combined with the renewables buildout in the region, has been weighing on wholesale power prices. California on-peak June and July packages month to date are below where day-ahead prices were for those months last year.
However, forward package prices have been on the rise since the start of the month, and August and September on-peak packages are currently higher than where day-ahead prices were during those months last year.
SP15 on-peak August has averaged nearly $40/MWh so far this month with on-peak September around $38.25/MWh.
JEFF: So with the strong hydro, it sounds like the region should have enough power supply to meet the cooling demand this summer?
KASSIA: Yes. Even with above-average temperatures expected across most of the region, Cal-ISO is projecting summer peak to be around 46,877 MW with a net capacity around 52,785 MW. Even under the one in 10-year scenario for extreme weather conditions, Cal-ISO expects load to peak at 48,845 MW.
JEFF: Now let's jump from coast to coast. Charles, how's the nation's largest grid operator gearing up for the summer?
CHARLES: Well, the PJM Interconnection, whose territory stretches from the Atlantic Ocean to Chicago and covers 13 states and Washington, D.C., expects to have adequate generation resources this summer.
PJM forecast summer peakload near 153 GW, which is slightly higher than 2016 actual peak which came in around 152 GW.
The region should have plenty of generation to meet electricity needs as PJM expects to have a reserve margin above 29% as well as having more than 9 GW of demand response at its disposal.
KASSIA: That reserve margin is well above the required level of about 16%. What does the market think of that ahead of summer?
CHARLES: The forward power summer strips have been ranging from the high $30s to mid-$40s/MWh—higher than last year, when many were in the mid to high $30s.
For Northern Illinois Hub July packages have been marked in the low $40s/MWh for most of May, while August has ranged in the high $30s/MWh.
Looking at PJM West Hub, July packages have been in the mid-$40s/MWh this month, while August are closer to the low $40s/MWh.
KASSIA: As summer approaches, we’ll have to wait to see how things shape out. Until next time, thanks for listening.
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