US POWER TRACKER: Mild weather, cheap gas, strong renewables sap Texas forwards

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Weak natural gas prices, a mild weather forecast and growing renewable fleets likely will drive Electric Reliability Council of Texas wholesale power prices sharply lower in December, compared with December 2022, when a winter storm over the Christmas holiday drove up monthly average prices.

December on-peak power for December delivery averaged in the high $40s/MWh across ERCOT's four major hubs in October, up about 5% from the September averages in the mid-$40s/MWh but down an average of about 13% from December 2022's averages in the mid-$50s/MWh and down almost 30% from December 2022's day-ahead on-peak locational marginal prices averaging in the high $60s/MWh.

These power prices are ERCOT clearing average LMPs collected for the S&P Global Commodity Insights price database.

At the Houston Ship Channel, S&P Global Platts-assessed natural gas averaged $3.236/MMBtu for December delivery in October, up about 1.5% from the September average of $3.188/MMBtu but down 47.7% from the December 2022 package's average of $6.187/MMBtu in October 2022.

CustomWeather has forecast the ERCOT region to have temperatures averaging about one to three degrees F above normal in December. The National Weather Service's latest long-lead forecast indicated even chances for above- or below-normal temperatures across Texas in December, January and February.

S&P Global Commodity Insights' North American Electricity Short-Term Forecast calls for load levels to average less than 43.5 GW in December, down about 2.4% from December 2022's 44.5 GW but up almost 10% from a forecast average of 39.6 GW for November 2023.

Renewable capacity growth

ERCOT's growing renewable fleet may also contribute to weaker power prices in December, as renewables have near-zero marginal costs and can be profitable at negative clearing prices up to the value of their federal production tax credits.

As of the end of November, ERCOT had 37.7 GW of wind operational, and another 571 MW had signed interconnection agreements and financial security posted for December delivery.

ERCOT's operational solar fleet approached 18.4 GW at the end of October with another 821 MW possessing interconnection agreements and posting financial security for December delivery.

Collectively, wind and solar fleet produced about 31.8% of ERCOT's energy in October, up from 24.1% in September and 29.2% in October 2022.

Wind and solar's strong output showing diminished their S&P Global assessed capture price indexes, but both remained profitable in October. A capture price index reflects the price each type of renewable was paid when they actually produced.

The ERCOT North Hub wind CPI averaged about $26.50/MWh, down almost 29% from September's $37.15/MWH and down 33.4% from October 2022's $39.75/MWh.

The ERCOT North Hub solar CPI averaged about $31/MWh in October, down more than 65% from September's $89.05/MWh and down 36.3% from October 2022's $48.65/MWh.

Natural gas' share

But cheap gas is also likely to boost gas-fired generation's share, which was flat around 43.4% in October compared with October 2022 but down 9 percentage points from this September's 52.4%, according to ERCOT data collected by S&P Global.

S&P Global's North American Electricity Short-Term Forecast calls for the ERCOT generation fleet's share to average more than 40.5% in December, up almost four percentage points from the December 2022 average of less than 35.8%.

Nevertheless, if the ERCOT generation fleet burns at a heat rate similar to December 2022, the system's power burn would likely barely exceed 3.3 Bcf/d in December, down from almost 3.7 Bcf/d in December 2022 and more than 3.9 Bcf/d this October.