Cheap gas, strong renewable output weaken Texas power prices during heat wave

Another heat wave promising triple-digit heat indexes across Texas through July 14 has prompted the Electric Reliability Council of Texas to forecast breaking its 80.8-GW peakload record July 11-14, but cheap natural gas and stronger-than-expected renewable output forecasts are keeping triple-digit power prices at bay.

The National Weather Service on July 10 issued heat advisory's for most of Texas, stretching from just south of Dallas-Forth Worth to the state's southern tip and from the Louisiana line on the east to New Mexico on the west. The weather service's forecast high temperatures and heat indexes, where available, for major metro cities are as follows:

• Dallas: 93 degrees F, 101 F heat index July 10; 96 F, 108 heat index July 11; 101 F, July 12; 102 F July 13-14
• El Paso: 104 F July 10; 105 F July 11-12; 104 F July 13; 106 F July 14
• Houston: 96 F, 106 heat index July 10; 97 F, 106 heat index July 11; 97 F July 12-14
• San Antonio: 102 F, 109 heat index July 10; 102 F, 108 heat index July 11; 103 F, July 12; 102 F July 13; 101 F July 14

ERCOT's 1:30 pm CT July 10 load forecast showed load peaking at 80.2 GW on July 10, just below the 80.8 GW record set June 27, but forecast loads to peak above the existing record July 11-14, even approaching 82 GW on July 13.

Pricing impact

During a period of similar heat in the same five days of July 2022, S&P Global Commodity Insights price data shows the ERCOT North Hub real-time on-peak prices averaged more than $486/MWh – even averaging more than $1,708/MWh on July 13.

However, the ERCOT North Hub day-ahead on-peak locational marginal price for July 10 delivery was just $47.25/MWh, and ERCOT North Hub real-time on-peak LMPs averaged $36.30/MWh through 2:15 pm CT on July 10.

ERCOT North Hub day-ahead on-peak power traded around $38.25/MWh on the Intercontinental Exchange July 10 for July 11 delivery. The balance-of-week package was trading around $37/MWh on the morning of July 10.

If those prices hold, the weekday average would be around $39.30/MWh, 21% higher than the average of $32.40/MWh for those same days in 2017-21.

But gas prices are significantly lower than they were in those same days of 2022 and the previous five years. Platts assessed Houston Ship Channel gas at $2.165/MMBtu for delivery July 10, and that price was trading around $2.30/MMBtu for July 11 delivery. Platts is part of S&P Global.

In contrast, Houston Ship Channel spot gas averaged almost $6.25/MMBtu July 10-14, 2022, and the previous five-year average for those days was almost $2.75/MMBtu.

Strong renewable output

In addition to substantially cheaper natural gas prices this summer, stronger renewable output is weakening wholesale power prices.

For example, in May, ERCOT's summer Seasonal Assessment of Resource Adequacy contained a base-case scenario with the wind fleet expected to be producing at a level of about 10.4 GW during the seasonal peak hour.

However, ERCOT at 11 am CT on July 10 forecast its wind fleet to be producing more than 14 GW during the peak hour ending at 5 pm CT July 10-14.

The summer SARA's base scenario indicated ERCOT's solar fleet would be producing almost 12.3 GW during the seasonal peak hour. The 11 am CT forecast showed solar output averaging 11.8 GW during the hour ending 5 pm CT July 10-14.