Weekly Energy Market Updates by Region - Archive

Issue week: January 3rd, 2020  (Wk 1)

POWER MARKETS

WEST Throughout the holiday season, the index market has fallen largely in line with historical averages as the grid has experienced seasonably average de-mand. The long-term forecast for this month projects cold weather to begin at the end of next week, and index prices could spike if it affects the entire West Coast and lasts for a while.

ERCOT   With the holidays and mild weather across the state, daily peak demand struggled to reach 40,000 MW this week. Consequently, 7x24 real-time prices averaged only in the mid-$10s/MWh for the period. Additionally, real-time congestion was minimal across all zones. For example, congestion in the West Zone, which was over $40/MWh last week, cleared under a nickel this week. Term prices also retreated from last week on continuing softness in NG prices, but heat rates remained flat. CY2020 7x24 prices were down by another $0.50/MWh from last week and, having now fallen by more than $3/MWh since early November, represent the best buying opportunity since then.

EAST  Weather forecasts now running through the third week of January show no signs of significant cold affecting the forward curve for the January/February ATC package, which decreased by more than $9.50/MWh over the entire month of December. So far this month, Real Time prices at AEP Dayton Hub and PJM Western Hub have averaged $21.10/MWh and $20.87/MWh, respectively.

2010 – 2019: A DECADE BY THE NUMBERS

As 2020 begins we take the opportunity to review the past ten years in energy markets. With the excep-tion of Texas and California, energy index prices in 2019 cleared below the decade’s average. In fact, PJM West and NY Zone J (New York City) saw the lowest index prices of the period in 2019. (Note that price data is not available for Houston and Indy Hub in 2010)

As shown above, annual electricity usage across the country shows no clear trend and thus offers no clear explanation of this price activity. Usage in 2010 was actually higher than usage in 2019. (Note 2019 includes estimates for November and December)

The ebb in wholesale electricity prices can primarily be explained by increased generation from cheap natural gas and increased renewable generation – renewables’ zero marginal cost pushes down index electricity prices.

Domestic natural gas production has increased by more than 50% over the past 10 years and is currently near records highs while gas costs to generators are near record lows.

While electricity prices and usage show no clear trend, various states’ policies make it more cer-tain renewable generation will increase. Additionally, our nation’s natural gas glut has seen the fuel gain generation share and low gas prices have generally reduced index power prices. How-ever the next decade will see more natural gas shipped abroad via LNG and uncertain produc-tion economics given the commodity’s historically low price. As the saying goes, the only constant is change.