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About Commodity Insights
25 Jul 2022 | 18:06 UTC
By Mark Watson
Highlights
ERCOT power prices more than triple
Extreme heat notices since July 13
Texas manufacturing activity continued to grow in July, albeit at a sedate pace, a new Federal Reserve Bank of Dallas survey shows, despite heat wave-induced surging power demand that prompted grid officials to ask large industrial users to curtail demand at peak days.
Such appeals may also be encouraged by high wholesale power prices. Through July 24, day-ahead on-peak locational marginal prices at the Electric Reliability Council of Texas' North Hub have averaged $170.50/MWh, compared with June's average of $94.44/MWh and more than triple the July 2021 average of $50.01/MWh.
The Midcontinent Independent System Operator's Texas Hub includes much of the Lone Star State's East Texas petrochemical complex, and the Texas Hub's day-ahead on-peak LMPs have averaged almost $90.20/MWh so far in July, down slightly from June's $98.18/MWh but more than double the July 2021 average of $41.14/MWh.
The Texas Manufacturing Outlook Survey's key index of production was 3.8% in July, up from 2.3% in June, but down sharply from July 2021's 30.6%. The survey indicates that 23.7% of respondents reported a month-on-month increase in production, while 19.9% reported a decrease.
Released July 25, the latest production index is the second lowest since May 2020, when the coronavirus pandemic-induced recession caused the production index to fall to negative 26.5%.
"Perceptions of broader business conditions worsened in July," the Dallas Fed said. "The general business activity index declined five points to minus 22.6. The company outlook index posted a fifth consecutive negative reading but moved up from minus 20.2 to minus 10.8. The outlook uncertainty index came off its two-year high of 43.7, falling to 33.7."
Eighty-seven Texas manufacturers responded to the survey, conducted July 12-20.
Through July 24, peakloads in the Electric Reliability Council of Texas have averaged 75.6 GW, which is higher than what was the record peakload before 2022, 74.5 GW set Aug. 12, 2019. June's daily peakload averaged 72.5 GW and July 2021's peakload averaged 65.3 GW. So far in July, ERCOT has set seven new all-time peakload records, after setting four more in June.
ERCOT has issued operating condition notices for extreme heat conditions from July 13 through July 27.
CustomWeather data indicates a month-to-date population-weighted average daily high temperature of 99.7 F through July 24, compared with June's 95.4 F and July 2021's 90.4 F. CustomWeather's population-weighted data only extends to 2015, but the previous record for July daily average high has been 2018's 95.6 F, and the all-time normal average high has been 94.8 F.
On July 10 and July 13, ERCOT appealed for the public to voluntarily reduce power consumption that afternoon and deployed Emergency Response Service, a program by which large power consumers are compensated for reducing load.
Because large industrial users often must pay higher transmission costs if their loads contribute to the highest four monthly peakload days of the year, they tend to curtail demand when those days are expected.