Average wholesale electricity prices at major trading hubs in the United States rose throughout much of 2022 and were, at times, volatile as a result of extreme weather events. The limited availability of coal to substitute for higher-priced natural gas also contributed to higher electricity prices.
Prices at all electricity trading hubs were higher in 2022 compared with 2021 except in the Electric Reliability Council of Texas (ERCOT). In February 2021, the average electricity price in ERCOT was $1,800 per megawatt-hour (MWh), pushing ERCOT’s annual average electricity price in 2021 higher than in 2022, due to Winter Storm Uri.
Four severe weather-related events caused major wholesale electricity price spikes in 2022:
1. In January, cold temperatures and a winter storm, combined with natural gas pipeline constraints in New England, caused New England wholesale electricity prices to rise, averaging $160/MWh in ISO-New England that month.
2. In July, a heatwave in Texas created record-breaking electricity demand in ERCOT, the grid operator for most of the state. Wind generation, an important source of electricity in Texas, provided less electricity than usual for several days during the heatwave because wind in Texas slowed to extremely low speeds. To make up for the drop in wind generation, natural gas–fired generation increased. Wholesale prices at the ERCOT North trading hub averaged $182/MWh that month.
3. In early September, a heatwave covered the western United States and resulted in record-breaking electricity demand. The price increases started in the Northwest, where the Northwest Mid-Columbia market hub’s whole electricity price averaged $224/MWh that month. In California, expensive natural gas–fired generation increased in the electricity generation fuel mix during the heatwave, resulting in higher electricity prices. In the CAISO region, the grid operator for California, the wholesale electricity price averaged $134/MWh that month.
4. Cold weather and winter storms throughout December in the Western Pacific regions of the United States led to record-high electricity prices in December at the Northwest Mid-Columbia market hub ($283/MWh) and at the CAISO N-15 hub ($257/MWh). Colder weather increased electricity demand, which increased natural gas-fired generation. The cold weather, along with supply constraints, caused natural gas spot prices in the western hubs to rise to about 10 times those at Henry Hub, the national benchmark price.
The natural gas price is a significant driver of wholesale electricity prices because natural gas is often the highest-cost fuel for electricity generation, setting prices for the hours that natural gas-fired generators run. In January 2022, natural gas prices continued an upward trend driven by economic growth in Asia and constraints on pipeline and liquefied natural gas (LNG) exports to Europe from Russia. High international demand for natural gas increased U.S. LNG exports, causing natural gas prices to rise for domestic customers. Natural gas prices rose from $3.70 per million British thermal units (MMBtu) in early January 2022 to almost $10.00/MMBtu in late August 2022. Milder temperatures and increased natural gas production lowered both natural gas and electricity prices after the September heatwave through early November 2022. Natural gas prices started to rise again as colder weather began in the United States.
In addition to higher natural gas prices and severe weather in 2022, railroad and coal mine labor shortages constrained coal supply and delivery to power plants throughout the summer, limiting utility operators’ ability to switch from relatively expensive natural gas to cheaper coal-fired generation.
Principal contributor: Lori Aniti
Originally published on U.S. EIA’s Today in Energy blog.
Related story: Hourly Electric Grid Monitor For USA
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Source: Clean Technica