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Extreme Weather, Fuel Constraints Drove High, Volatile 2022 Electric Prices

Extreme weather, compounded by natural gas and coal constraints, resulted in higher and volatile wholesale electric prices in 2022, according to the Energy Information Administration.

Prices at all electricity trading hubs were higher in 2022 compared with 2021, except in the Electric Reliability Council of Texas region where Winter Storm Uri pushed prices to $1.800 per megawatt hour in February 2021 and making ERCOT’s 2021 annual average electricity price higher than in 2022, the EIA said.

The EIA, a part of the Department of Energy, cited four severe weather-related events in 2022 that contributed to volatility and pushed wholesale prices higher last year.

Last 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.

In July, a heatwave in Texas created record-breaking electricity demand in ERCOT while wind generation provided less electricity than usual for several days during the heatwave as wind speeds dropped precipitously. Natural gas-fired generation increased to make up for the drop in wind generation, pushing up prices at the ERCOT North trading hub, which averaged $182/MWh that month.

An early September heatwave in the western United States resulted in record-breaking electricity demand and rising prices. The price increases started in the Northwest, where the Northwest Mid-Columbia market hub’s wholesale electricity price averaged $224/MWh that month. In California, natural gas-fired generation increased in the generation mix, resulting in higher electricity prices. In the California ISO (CAISO) region, the wholesale electricity price averaged $134/MWh that month.

In December, cold weather and winter storms in the Western Pacific regions led to record-high electricity prices of $283/MWh at the Northwest Mid-Columbia market hub while CAISO’s N-15 hub hit $257/MWh.

Once again, cold weather increased demand, which increased natural gas-fired generation. And 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.

Early last year, natural gas prices were pushed higher by economic growth in Asia and constraints on pipeline and liquefied natural gas (LNG) exports to Europe from Russia. Meanwhile 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/MMBtu in late August 2022.

Milder temperatures and increased natural gas production lowered natural gas and electricity prices after the September heatwave and through early November. Natural gas prices then started to rise again as colder weather set in.

The limited availability of coal to substitute for higher-priced natural gas also contributed to higher electricity prices.

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.