Electricity Markets

Wholesale Electric Prices Rose From 2020 To 2021, EIA Reports

Average wholesale electricity prices rose in 2021 compared with 2020 levels pushed, in part, by higher natural gas costs, according to the Energy Information Administration (EIA).

Constraints on electricity supply as a result of cold weather in the central United States created price spikes in February 2021, EIA said, but the overall rise in electricity prices was particularly steep in the second half of 2021, the EIA noted.

Electricity prices were particularly volatile in the Electric Reliability Council of Texas (ERCOT) market where record low temperatures in February resulted in emergency conditions and rotating outages. The cold weather also restricted the flow of natural gas for power generation, and many wind turbines froze. Those factors combined to push hourly wholesale prices at the ERCOT North trading hub above $6,000 per megawatt hour (MWh) for 70 percent of the time. For the month of February, Texas’s wholesale electricity price averaged $1,485/MWh.

The cold weather also caused near record high spikes in the price of natural gas throughout the country, leading to high electricity prices in other wholesale markets. In the PJM Interconnection, February wholesale electricity prices averaged $42/MWh. In ISO-New England prices averaged $73/MWh.

After the February spike, natural gas prices continued to rise through October as economic recovery contributed to overall growth in natural gas demand, which outpaced the ability of gas supply growth to replace inventories drained during the winter storm.

The price of natural gas, which is used to fuel many peaking power plants, is often the main driver of wholesale power prices. And while natural gas prices have been low in recent years – the cost of natural gas delivered to electric generators averaged $2.40 per million British thermal units (MMBtu) in 2020 – prices are rising.

Last year the delivered cost of natural gas to generators rose from $3.19/MMBtu in January 2021 to an estimated $5.04/MMBtu in the fourth quarter of 2021, EIA said.

EIA is estimating that 2021 will prove to be a record year for U.S. natural gas production.

In 2020 wholesale electricity prices were generally lower than they were in 2019. Wholesale power prices were 5 percent lower in the California Independent System Operator (CAISO) market and 45 percent lower in ERCOT, EIA reported..

Wholesale electricity prices in ERCOT were less volatile and averaged $22/MWh in 2020 compared with $38/MWh in 2019, EIA said.

In CAISO, wholesale electricity prices were 34 percent lower in the first half of 2020 than they were in the first half of 2019, mostly as a result of near record-low natural gas costs and reduced electricity demand resulting from pandemic-related stay-at-home orders, EIA said. However, higher than expected electricity demand in the second half of the year caused rolling outages and resulted in an average wholesale price of $77/MWh in August.