WEST TRACKER: High gas prices drive up power prices, overshadow renewable output

Wholesale power prices across the West averaged nearly 50% higher year on year as strong gas prices stifled renewable generation output, while winter forward packages continue to rise.

California Independent System Operator peakload averaged 27.923 GW in October, down 12% from a year ago and a drop of 20% from September, according to ISO data. Population-weighted temperatures averaged 8.4% lower year on year for October, according to CustomerWeather data.

Spot market

Mid-C on-peak day-ahead prices climbed the most in the West, increasing 95% from a year ago to average $65.51/MWh in October, as off-peak jumped 104% to average $56.76/MWh, according to S&P Global Platts pricing data. Mid-C on-peak hourly prices climbed even more, up 113.8% year on year to average $60.63/MWh in October, as off-peak grew 108% to average $45.43/MWh, according to Platts data.

Sumas spot gas averaged $5.685/MMBtu, 78.4% higher year on year, according to S&P Global Platts pricing data.

NP15 had the highest on-peak day-ahead locational marginal prices averaging $68.94/MWh, an increase of 46.6% year on year, with off-peak up 76% to average $60.99/MWh, according to CAISO data. Helping drive up power prices, SoCal city-gate spot gas was 70.4% higher year on year at an average of $6.134/MMBtu, while PG&E city-gate was 75.2% higher at $6.992/MMBtu, according to S&P Global Platts pricing data.

Bucking the trend, Palo Verde on-peak day-ahead decreased 3.3% year on year to average $46.46/MWh in October, while off-peak rose 76.7% to average $46.86/MWh, a premium to on-peak. Likewise, SP15 off-peak day-ahead averaged $57.95/MWh, a premium to the on-peak average of $56.37/MWh.

Generation changes

In the Northwest, hydro generation slipped 3.7 points year on year to average 64.8% of the total fuel mix, while thermal generation added 2 points to average 14.1%, according to Bonneville Power Administration data. Total generation was up about 5% from a year ago to average 5.639 GW as peakload was nearly 3% higher, averaging 6.548 GW for October, according to BPA data.

As gas prices have been higher, thermal generation shed 3.2 percentage points year on year to account for 40% of the total fuel mix for October, according to CAISO data. Likewise, imported generation was down 6.2 points from a year ago to average 20.5% of the mix.

Renewable generation increased. CAISO solar power grew 2.4 points to make up nearly 15% of the total fuel mix for October, as wind power added 3.1 points to average nearly 8%. Total power generation sank almost 6% from a year ago to average 24.3 GW for October, according to CAISO data.

CAISO's gas fleet consumed about 1.62 Bcf/d in October, down 16.7% from September and down 22.4% from October 2020. Assuming a similar heat rate to December 2020, CAISO's gas fleet would consume about 2.25 Bcf/d in December 2021, which would be about 17% lower year on year, according to Platts Analytics data.

Forward curve

Higher gas forwards continue to drive up power forwards.

Mid-C on-peak November rolled off the curve at $63.70/MWh, 60% higher than where the 2020 package ended a year ago, according to S&P Global Platts data.

Mid-C on-peak December package is currently in the mid-$80s/MWh, 113% higher than its 2020 counterpart last year, while on-peak January 2022 is also in the mid-$80s/MWs, 117% above the 2021 package a year ago. The December and January packages reached package highs of $107/MWh and $101/MWh in September, both about 130% higher than their year-ago counterparts.

SoCal Gas November rolled off the curve at $6.827/MMbtu, 101.6% above the 2020 contract a year ago. The December contract is currently about $6.812/MMBtu, 90% higher than its 2020 counterpart last year, while January is around $6.685/MMBtu, 80.4% higher.

The 6-10 day forecast indicates a greater probability for above-normal temperatures in California with near normal temperatures expected in the Northwest, very similar to the three-month outlook, which indicates below-normal temperatures expected in northwest Washington state, according to the US National Weather Service.