US POWER TRACKER: MISO forward prices continue ascent toward tight summer

July average power forwards in the Midcontinent Independent System Operator more than tripled at key locations in May, compared to the price of July 2021 forwards in May 2021, as the region faces high gas prices, hot temperatures, and a capacity shortage this summer.

For example, Indiana Hub July on-peak power forwards averaged $175.31/MWh in May, up 363% from $37.89/MWh that July 2021 forwards averaged in May 2021, and up 48% from $118.37/MWh that July forwards averaged in April, according to S&P Global Commodity Insights data.

Louisiana Hub July on-peak power forwards also trended upward, averaging $164.46/MWh in May, up 349% from the $36.59/MWh that July 2021 forwards averaged in May 2021, and up 50% from the $109.88/MWh that July forwards averaged in April.

The increase in forward prices comes after North and Central MISO recently had a 1.2 GW shortfall in the capacity auction for the planning year that started June 1. MISO has projected that it will not have enough firm resources to cover typical peak summer loads and the grid operator will need to rely on emergency resources and non-firm imports to maintain reliability.

Gas forwards

Gas forward prices are also up. For example, Chicago city-gates July gas averaged $8.044/MMBtu in May, up 198% from $2.698/MMBtu that July 2021 gas averaged in May 2021, and up 22% from $6.606/MMBtu that July 2022 gas averaged in April 2022.

Henry Hub July gas averaged $8.230/MMBtu in April, increasing 192% from $2.823/MMBtu that July 2021 forwards averaged in May 2021. May 2021's average was also a 20% increase from $6.875/MMBtu that July 2022 forwards averaged in April 2022.

"As gas prices are expected to remain elevated, the risk to power prices remains to the high side this summer if above normal temps persist, leading to lower storage injections for gas this summer and therefore higher fuel and power prices," said Tyler Jubert, an S&P Global Commodity Insights power market analyst.

But wind generation has been strong this year as more capacity has come online and generally strong wind speeds have boosted output, so this could offer some relief from expensive thermal generation, Jubert said. "That said, wind speeds tend to be lower during peak summer months, therefore limiting upside potential for wind output," he said.

May prices

May average day-ahead, on-peak locational marginal prices at the Indiana, Michigan, Minnesota, Louisiana and Texas hubs all rose more than 100% year on year. The biggest percentage increase among these locations occurred at the MISO Indiana Hub, which went up 190% year on year to average $93.71/MWh in May. The MISO Minnesota Hub saw less movement, increasing 112% year on year to average $60.93/MWh in May.

Several of these locations in May also hit their highest prices since the February 2021 winter weather event. For instance, the MISO Indiana Hub reached $120.62/MWh on May 13, the highest price since it hit $209.45/MWh on Feb. 18, 2021. The MISO Michigan Hub was $120.82/MWh on May 13, the highest price since it reached $199.21 on February 18, 2021.

Recent high prices were also linked in part to warm May weather and MISO declarations. MISO issued a maximum generation emergency alert for May 12 for the entire MISO balancing authority, and it issued a maximum generation emergency alert for May 13 for the Central region areas due to forced generation outages, higher than forecast load and above-normal temperatures.

May's population-weighted average cooling-degree days were up 60% year on year, and population-weighted daily temperatures in MISO averaged 62.9 F, compared to the average of 59.3 F in May 2021, according to CustomWeather data.

Gas prices were also higher in May, S&P Global data shows. Henry Hub spot gas averaged $7.999/MMBtu in May, a 178% increase from the May 2021 average of $2.876/MMBtu and a 24% increase from the $6.475/MMBtu average in April 2022. Chicago city-gates spot gas averaged $7.793/MMBtu in May, a 183% increase from $2.750/MMBtu in May 2021 and a 22% increase from $6.387/MMBtu in April 2022.

Generation mix

Average daily power burn for MISO's gas-fired generation fleet was about 3.2 Bcf/d in May, up from 2.8 Bcf/d in April 2022, and up from 2.8 Bcf/d burned in May 2021, according to data from S&P Global Commodity Insights. Daily power burn is projected to be about 4.1 Bcf/d in July, assuming a heat rate similar to July 2021.

Natural gas-fired power topped the generation mix, providing 33.4% of MISO's average daily power in May, up from 31.7% in April 2022, and up from 28.1% in May 2021.

Coal-fired power took the next slot at 32.1% of the fuel mix in May, up from 30.7% in April 2022, but down from 37.4% in May 2021. Wind came in third, supplying 16.9% of MISO's generation in May, down from 22.6% in April 2022, but up from 14.8% in May 2021.