Wholesale electric prices will rise significantly this summer over last summer’s prices, the Energy Information Administration (EIA) said in its latest Short-Term Energy Outlook (STEO).
The Northeast and New York will be hardest hit with expectations of $153 per megawatt hour (MWh) in ISO New England and $121/MWh in New York ISO, up from $50/MWh and $46/MWh last summer, respectively.
The EIA also expects wholesale electric prices to be over $100/MWh in the Northwest and MidAtlantic regions with the Northwest reaching $108/MWh and prices in the PJM Interconnection hitting $101/MWh, compared with $91/MWh and $45/MWh last summer, respectively.
The STEO forecasts wholesale prices for one price hub in each of the 11 market regions in the continental United States. The wholesale price data in the STEO reflect the monthly average electricity price in a region during on-peak hours between June and August.
While a variety of factors determine wholesale electricity prices, the cost of fuel for fossil-fuel generators, particularly natural gas, is an important driver in rising electric prices, the EIA said.
Natural gas-fired generation is often the most expensive source of dispatchable marginal generation, and the gas price at the Henry Hub averaged $8.14 per million British thermal units (MMBtu) in May 2022, compared with $2.91/MMBtu in May 2021, the EIA noted. “We expect the price of natural gas delivered to electric generators to average $8.81/MMBtu this summer, up from $3.93/MMBtu last summer,” the STEO noted.
In the past generators could substitute coal fired generation when the cost of gas-fired generation rose, but in recent months, coal plants have responded less than in the past as an alternative source of generation, most likely as a result of continued coal capacity retirements, constraints in fuel delivery to coal plants, and lower-than-average stock piles at coal plants, the STEO said.
The EIA forecasts that the share of U.S. generation from coal-fired power plants will decline from 25% last summer to 23% this summer, and natural gas’s share will remain relatively constant at 40%.
Other factors could also push wholesale electricity prices higher this summer, the EIA said, including the extended drought in the western United States.
The EIA forecasts a slight increase in hydroelectric generation in California this summer compared with last summer, but the forecast remains relatively low.
Less hydropower output this summer will likely lead California to generate more electricity from natural gas and to import electricity from neighboring states, the EIA said.
The STEO expects wholesale power prices in the California ISO to reach $98/MWh compared with $67/MWh last summer. Prices in the Southwest will be slightly lower, $97/MWh versus $82/MWh last summer, according to the STEO.
The Midcontinent ISO and the Electric Reliability Council of Texas (ERCOT) will also reach the $90 mark with MISO hitting $92/MWh versus $45/MWh last summer, and ERCOT hitting $90/MWh versus $54/MWh last summer, according to STEO forecasts.
The STEO puts Southwest Power Pool (SPP) prices at $82/MWh compared with $45/MWh last summer,
The STEO sees wholesale prices in the Southeast (SERC) hitting $76/MWh versus $45/MWh last summer, and in Florida (FRCC) the STEO forecasts prices $66/MWh compared with $41/MWh last summer.
At the residential level, the STEO forecasts prices will average 14.6 cents per kilowatt hour (kWh) between June and August, up 4.8 percent from last summer. Commercial prices will average 12 cents/kWh, a 4.7 percent increase, and industrial prices are expected to average 7.7 cents/kWh, 3.2 percent increase, according to the STEO.
Meanwhile, renewable generation sources are expected to contribute a growing share of electricity production, the STEO said. “We expect renewable energy will provide 22 percent of U.S. generation in 2022 and 24 percent in 2023, up from a share of 20 percent last year,” the report said.
The rise in renewable generation is coming from rising levels of new renewable capacity. Solar capacity additions in the electric power sector total 20 gigawatts (GW) for 2022 and 22 GW for 2023, the STEO reported, noting that solar photovoltaic installation delays from 2022 to 2023 account for about 1 GW of the expected installed solar capacity. The STEO also forecasts that small-scale solar systems – less than 1 GW – will grow to 39 GW by year-end 2022 and to 46 GW in 2023.
The STEO estimates that U.S. wind capacity additions will total 11 GW in 2022 and 5 GW in 2023.