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Electric Power, Natural Gas, Energy Transition, Renewables
November 25, 2024
HIGHLIGHTS
December 2023 was unusually warm
Power demand, gas burn likely to surge
Midcontinent Independent System Operator energy traders foresee substantial risk of higher power prices in December, judging by forward trading, likely due to forecasts for temperatures to be closer to normal, compared with an unusually mild December 2023.
December on-peak power forwards traded from the high $30s/MWh to the high $40s/MWh on Nov. 22 for five geographically dispersed hubs across MISO's 14-state footprint, according to the Platts M2MS Power Forward Curve. Platts is part of S&P Global Commodity Insights.
Platts assessed Chicago city-gates December gas at $3.459/MMBtu on Nov. 22, up from December 2023 spot price of $2.13/MMBtu. Henry Hub December gas was priced at $3.129/MMBtu, compared with December 2023's spot price of $2.525/MMBtu.
CustomWeather forecasts temperatures to average between zero and three degrees F above normal in December, but MISO's population-weighted temperatures averaged more than 8 degrees F above normal in December 2023.
Shorter-term weather forecasts may also be affecting December expectations, said Ian Palao, vice president of strategic energy services at POWWR, an energy management service and software company based in Raleigh, North Carolina.
"While numerous forecasts are calling for a warm December overall, weather models are showing a distinct cold push in the northern tier of the US to end November and begin December, which will most assuredly eat into natural gas storage," Palao said. "The market is seeing the risks to the colder side."
CustomWeather on Nov. 24 forecast MISO population-weighted temperatures to average almost 14 degrees below normal Nov. 25-30, and MISO forecast its load to be about the same as the average of the previous five years for those dates.
One reason for higher energy-price risk is the El Nino Southern Oscillation, which has not yet shifted to the La Nina condition, as expected earlier, Palao said in a Nov. 25 email. Central Pacific tropical sea surface temperatures above long-term averages indicate an El Nino condition, while temperatures below long-term averages indicate a La Nina condition. Meteorologists expect these conditions to have a big effect on North American weather.
"Even if La Nina is classified in December, it takes a good six weeks for the oceanic signal to 'reach' and influence the atmosphere," Palao said. "By that time, less and less winter remains. So, could calls for a warm winter (based on La Nina) be mostly incorrect? That's the larger risk this winter."
Commodity Insights' latest North American Electricity Short-Term Forecast indicates MISO load levels could average about 6.6 GW, or 9.4%, higher in December than in December 2023.
The forecast also calls for natural gas-fired generation levels in Decenter to average 2.6 GW, or 9.5%, higher than December 2023 levels.
Assuming the forecast is correct and applying the October implied heat rate would result in a power burn of more than 4.1 Bcf/d, compared with December 2023's 3.5 Bcf/d and this October's 3.4 Bcf/d.
MISO's day-ahead on-peak locational marginal prices across the five hubs included in this analysis averaged in the low $30s/MWh in October, down about 13% from October 2023's prices averaging in a range from the mid-$30s/MWh to the low $40s/MWh.
Platts-assessed Chicago city-gates spot gas averaged $1.998/MMBtu in October, down 14.2% from October 2023's $2.329/MMBtu. Henry Hub spot gas averaged $2.214/MMBtu in October, down by 25.4% from October 2023's $2.966/MMBtu.
Peakloads averaged up 1.4% to almost 77.6 GW in October from October 2023's 76.5 GW, but combined population-weighted heating and cooling degree days averaged down almost 34% in October, compared with October 2023. The National Weather Service defines a degree day as the difference between the daily temperature mean (high temperature plus low temperature divided by two) and 65 degrees F.
With power demand almost flat and natural gas prices down, MISO's gas-fired generation fleet easily retained its leading share, with 36.5% in October, but this was down from September's 39.7% and October 2023's 37.9%.
The coal-fired fleet retained its second-place share but also fell, averaging 24.5% in October compared with 27.6% in September and 29.9% in October 2023.
Wind power assumed the No. 3 position, with 19.6% in October, up from September's 12.3% and October 2023's 17.6%.
MISO's nuclear fleet supplied 14.6% of the system's generation, down from 15.5% in September but up from 12% in October 2023.
The MISO wind fleet, with near-zero marginal costs, remained profitable in October. Indiana Hub's wind capture price index averaged $28.65/MWh in October, up from September's $28.32/MWh but down from October 2023's $33.38/MWh, according to Platts data.
This index reflects the clearing price of power when intermittent renewable resources are generating. Thus, wind capacity produced in October when power prices were up from September but down from October 2023.