US POWER TRACKER: West power prices plunge on year on El Nino impacts

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US West power forwards are trending roughly 50% lower than year-ago packages on weaker gas forwards and above-normal temperatures forecast with El Nino weather conditions to linger into spring.

El Nino conditions, which typically occur January through March, tend to bring more rain to the US Southwest and warmer-than-normal temperatures. The three-month outlook indicates a greater probability for above-normal temperatures across most of the Western US, with the exception of the Desert Southwest, according to the US National Weather Service's Climate Prediction Center.

SP15 on-peak January rolled off the curve at $55.75/MWh, 79.4% lower than where the 2023 package ended, according to data from Platts, part of S&P Global Commodity Insights. The February package is currently in the low 50s/MWh, 70% below where its 2023 counterpart was a year earlier, while the March package is in the mid-$30s/MWh, 55.4% lower.

In gas forwards, SoCal January rolled off the curve at $3.779/MMBtu, 97.9% below where the 2023 contract ended a year earlier, according to S&P Global data. The February contract is currently around $4.063/MMBtu, 78.9% lower than its 2023 counterpart at the same time last year, while the March contract is about $2.816/MMBtu, 63.2% lower.

Gas plants burned an average of 1.815 Bcf/d in December to generate an average of 267.167 GWh/d, an analysis of S&P Global data showed. That's down 0.66% from November and a drop of 11.2 % from 2023.

S&P Global forecast CAISO's gas fleet to generate around 220 GWh/d in February. In comparison, burning fuel at the same rate as February 2023 would consume 1.758 Bcf/d, a 6% decrease year on year.

Spot markets

In spot markets, power prices were down significantly from a year ago, when cold weather hit the region and drove up prices.

SP15 on-peak day-ahead locational marginal prices averaged $43.49/MWh in December, 83% lower year over year and 11.2% below November prices, according to California Independent System Operator data.

Helping pull down power prices, spot gas at SoCal city-gate was down 88.4% year on year and 40% lower month on month at an average of $3.554/MMBtu in December, according to S&P Global data. In the Northwest, Sumas spot gas was down 90.6% year on year at an average of $2.669/MMBtu.

The decline in spot gas prices likely accounts for the lower average spot power prices month on month in December, said Morris Greenberg, senior manager with the low-carbon electricity team at S&P Global.

Compared to a year earlier, CAISO population-weighted temperatures averaged 8% higher in December, resulting in 38.4% fewer heating-degree days, according to CustomWeather data.

Fuel mix

Thermal generation remained the lead fuel source at 46.1% of the total fuel mix in December, little changed year on year, while solar generation was up nearly 6 percentage points to average 14.7% of the mix, according to CAISO data. Hydropower remained strong, averaging 8% of the December fuel mix, 2 points higher than a year earlier.

Total generation was down nearly 8% from a year earlier at an average of roughly 23.4 GWh/day, as peakload slipped 2% year on year to average 27.254 GW in December, according to CAISO data.

In the Northwest, peakload dropped nearly 11% year on year to average 7.89 GW in December, according to Bonneville Power Administration data. Hydropower remained the lead fuel source at nearly 74% of the mix, followed by nuclear at 12.3%, thermal at 9.6% and wind at 4.3%.

Following El Nino expectations of the Northwest for warmer temperatures and drier precipitation, BPA population-weighted temperatures in December were 10% above normal and 21.5% higher than a year earlier, leading to 27% fewer heating-degrees days year on year, according to CustomWeather data.


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Potential record-setting hurricane season is forecast and may weaken energy demand, prices

The National Oceanic and Atmospheric Administration on May 23 projected the most tropical cyclones ever in its early hurricane season forecast, and such storms could weaken energy demand and prices in landfall areas during what may be an otherwise warmer-than-normal summer. In particular, NOAA made the following forecast: 17-25 named storms, up from 14.7 for 1991-2023 Eight to 13 hurricanes, up from 7.2 for 1991-2023 Four to seven major hurricanes, up from 3.2 for 1991-2023 At the high end of the forecast, the season could equal 2020's record seven major hurricanes and approach 2020's record 30 named storms and 2005's record 15 hurricanes. "As one of the strongest El Nino ever observed nears its end, NOAA scientists predict a quick transition to La Nina conditions, which are conducive to Atlantic hurricane activity because La Nina tends to lessen wind shear in the tropics," NOAA said. "At the same time, abundant oceanic heat content in the tropical Atlantic Ocean and Caribbean Sea creates more energy to fuel storm development." Energy market impacts Tropical cyclones making landfall 2021 through 2023 cut peakloads at affected grids an average of 18%, power burns an average of 17%, and power prices -- excluding the Electric Reliability Council of Texas South Hub's extreme case in 2023 -- an average of 38%. ERCOT had one of its hottest summers on record in 2023, so day-ahead on-peak locational marginal prices at the South Hub averaged almost $795/MWh on Aug. 15, the Tuesday before Tropical Storm Harold hit South Texas on Tuesday, Aug. 22, when prices averaged less than $60/MWh. The change was drastic, inasmuch as ERCOT load fell just 1.5% on the week, and natural gas power burn actually increased 10.7%. South Texas has a large wind generation fleet, which may have been taken offline during the storm due to transmission constraints or grid reliability concerns. Grant Gunter, energy markets expert at PA Consulting, said hurricanes "can be a mixed bag for supply and demand" for natural gas. The production impact "used to be the typical thinking for hurricanes," as they would diminish offshore production as platforms shut down and evacuate, Gunter said in a May 23 email. "However, as offshore gas production has fallen and moved more onshore, these impacts have become more muted," Gunter said. "A mild hurricane likely won't impact onshore Gulf Coast production all that much." In contrast, hurricanes can have a big impact on power burn and shut-in LNG exports, Gunter said. The National Weather Service on May 16 forecast enhanced chances – 40% to 60% -- for above-normal temperatures for June, July and August across the US South Atlantic and Gulf Coast. CustomWeather on May 22 forecast temperatures to be zero to two degrees above normal across the region in June. "Power outages naturally reduce power burn demand, which is a significant source of demand in Texas and the Southeast," Gunter said. "LNG facilities, which are situated primarily along the Texas and Louisiana Gulf Coast, will usually halt exports during hurricanes due to rough seas and an inability to bring in tankers to load. These shut-ins can last 3-5 days or more depending on the severity of the storm, and a single LNG facility shutting in can result in 2+ Bcf/d of demand going offline. Ian Palao, vice president for strategic energy services at POWWR, an energy management service, advised considering ERCOT's likely heavy heat-driven power demand, despite the hurricane forecast. "Because of the random nature of hurricane landfall, I wouldn't expect an increased level of forecasted tropical activity to nullify the potential heat risk this far out in time," Palao said in a May 23 email. Hurricanes in the past have affected not only the demand side from reduced load due to system outages but also the supply side, due to reduced offshore production. "I would say hurricanes have more of a demand (gas burn for electricity generation) impact than a supply impact as significant swaths of cities can be off the grid for upwards of a week or more (thinking of Hurricanes Harvey and Ida)," Palao said. "Additionally, given that on-shore gas production far outpaces off-shore production, a temporary shutdown of offshore rigs will be but a blip in total supply." Risk management As of May 22, day-weighted average on-peak power forwards for the 2024 hurricane season, June 1 through Nov. 30, were less than day-ahead on-peak prices at relevant hub in ERCOT, but had premiums in comparison with day-ahead on-peak power in the Southeast and at the Midcontinent Independent System Operator's Louisiana Hub. 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"The forward markets, even at a near coastal hub months before the hurricane season begins, do not have any information or data that indicates the timing or severity of hurricane landfall, so the incorporation of a long-term forecast like this is interesting data to the market, but not likely a key component of forward price," Germeroth said in a May 23 email. Another risk to consider is the effect on solar installations, which have grown substantially over the past few years along the Gulf Coast, particularly in Florida and Texas. Tulane Energy Institute Associate Director Eric Smith said Florida's "new solar capabilities will be vulnerable to damage from wind-borne debris." "Texas is also vulnerable to wind damage to both solar and wind assets," Smith said May 23. 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The US exports about 13 billion cubic feet of LNG daily, mainly through Gulf Coast facilities. "Although LNG facilities generally have many layers of protection from direct impact, hurricanes can damage electrical and marine infrastructure and hamper ship movement," the EIA analysis said. Hurricane Laura in 2020 temporarily halted LNG exports from Louisiana's Sabine Pass and Cameron LNG facilities. All that said, OTC Global Holdings' Faulkner described forecasts for an abnormally active hurricane season are "borderline useless." "Last year was supposed to be horrible and ended up being rather benign," Faulkner said May 23. "Thus the prognosticating and fear mongering is an exercise designed to drive clicks and induce fear in the wider populace." But Faulkner acknowledged that if a hurricane does approach the Gulf Coast, its effect "could be serious, especially given the importance of LNG exports," causing gas prices to "plummet."


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