El Niño shift cuts chances for hotter-than-normal US summer, lessening power price risk

El Niño conditions that are starting to dominate North American weather patterns are mitigating the risk of above-normal temperatures, weather forecasters said April 20, which would tend to moderate power demand and prices in the region, particularly in the Eastern Interconnect, where above-normal precipitation is forecast.

The El Niño Southern Oscillation phenomenon, which reflects changes in equatorial Pacific Ocean subsurface temperatures, has transitioned from a La Niña condition—below-normal temperatures—to neutral, the National Weather Service said. The weather service forecast a 62% chance of an El Niño condition—above-normal temperatures—developing May through July and an 80% chance by the fall.

The weather service increased chances—33% to 60%—for above-normal temperatures for June, July, and August for most of the US except for most of the central and northern Great Plains, where near-normal temperatures are more likely.

In contrast, Atmospheric G2, a private weather service, forecast near-normal temperatures for the entire contiguous US south of a line from New Hampshire to the Oklahoma Panhandle and the Oregon-Washington state line. Above-normal temperatures are likely above that line.

Mark Shipham, the chief meteorologist at Amperon, an energy load-management technology company, cited April 20 a Euro model forecast calling for temperatures ranging from zero to 3 degrees above normal across the contiguous US in June through August, with no temperature anomalies in most of the western half of the US and along the Gulf Coast.

Noting that 2022 had the second-hottest summer since 1950, Shipham said, he expects electricity-weighted cooling degree days in the summer of 2023 to be about 14% fewer than in 2022, "so drastically different from last summer."

More rain in the forecast

The weather service, Atmospheric G2, and Euro model forecasts indicate significant chances for above-normal precipitation in the eastern half of the US.

Atmospheric G2's forecast extends that forecast as far west as eastern Arizona, eastern Wyoming, and most of Colorado, while the Euro model focuses on enhanced chances around the Great Lakes region.

The Euro model forecasts near-normal precipitation across most of the US, with pockets of below-normal rainfall in East Texas and along the Georgia-South Carolina state line.

"What a difference a year makes, with tremendous drought relief that has occurred and flooding out in the western parts of the country," Shipham said.

Regarding tropical storm activity, Shipham cited Colorado State University's forecast for 13 named storms, six hurricanes, and two major hurricanes, compared with 1991-2020 annual averages of 14.4 named storms, 7.2 hurricanes, and 3.2 major hurricanes.

Subsurface water temperatures in the Gulf of Mexico are well above normal, however, Shipham said. El Niño summers tend to generate wind shear, which diminishes cyclonic activity, but if a cyclone "can get into the Gulf, look out!"

"As I always tell everyone, all it takes is if you happen to be in the area when one hits," Shipham said.

Power market impact

In 2022, year-on-year average high temperature increases likely reinforced power price hikes likely driven by energy market shocks from the war in Ukraine, but those high temperatures may tend to moderate power demand and prices in summer 2023.

Power traders seem to have already started expecting less risk of extreme pricing. On April 19, ERCOT North Hub forwards for June, July, and August had a daily average of $67.56, compared with June-August 2022's day-ahead on-peak locational marginal price average of more than $124/MWh.

At major power hubs across the US, day-ahead on-peak power was priced above $100/MWh in many locations in June through August 2022, often more than double prices during the same period in 2021, according to S&P Global Commodity Insights price data.

The strongest factor in 2022's price surge was natural gas. Henry Hub spot gas averaged $7.866/MMBtu from June through August 2022, more than double the average of $3.675/MMBtu for the same period of 2021, S&P Global price data shows.

But hotter weather also contributed to higher prices and stronger power demand. In the Electric Reliability Council of Texas market, for example, the population-weighted average high for June through August 2022 was 95.9 degrees F, a 6% increase from the same period of 2021's 90.5 F. ERCOT's peakload averaged 72.8 GW in the summer of 2022, a 10.9% jump from 65.6 GW in summer 2021.