Electricity Markets

Wholesale power prices in West hit highest levels since 2008: EIA

Wholesale power prices in the western U.S hit their highest levels since 2008 this past summer thanks to record-high temperatures and fuel supply constraints, the Energy Information Administration said on Sept. 25.

In its “Today in Energy” report, EIA said that in the area served by the California Independent System Operator, peak-period electricity prices in July averaged $101 per megawatt hour, the highest monthly average since the current day-ahead market began trading in April 2009.

Peak-period electricity prices at the Palo Verde trading hub in Arizona and at the Mid-Columbia hub in the Pacific Northwest averaged $89/MWh and $72/MWh, respectively, in July. Prices in each area also remained relatively high through August, EIA noted. The report was based on data from S&P Global Market Intelligence.

EIA noted that summer 2018 temperatures were much warmer than normal in the western U.S. and the hot summer temperatures led to relatively high demand for electricity.

According to EIA, electricity load in the western states was particularly elevated during the last week of July.

Hourly electric load data collected through EIA’s U.S. Electric Operating System survey indicate that the coincident hourly load for the Western Interconnection (including the Northwest, Southwest, and California regions) peaked at 139.4 gigawatts during the evening of July 24, 2018, the highest level since EIA began compiling this data in mid-2015.

“The elevated electricity demand contributed to the highest wholesale prices in at least the past 10 years,” EIA said.

Daily average electricity prices at the California ISO’s SP-15 trading hub, which reflect electricity market conditions in Southern California, reached $377/MWh on July 24. Electricity prices at the Mid-Columbia hub between Oregon and Washington averaged $230/MWh that day, and prices at the Palo Verde hub in Arizona reached $291/MWh on July 25; both were the highest daily average prices since 2008.

“Hot weather during the second week of August again led to relatively high electricity prices at the western U.S. trading hubs, and Mid-Columbia prices reached a new high of $255/MWh on August 7,” the report noted.

Hydro conditions, spike in natural gas fuel costs

Meanwhile, EIA said that many western states experienced drought conditions in recent months, which led to a decline in conventional hydroelectric output.

“Hydropower output in California during the first half of 2018 was slightly higher than the previous five-year average, but it was still 47% lower than generation during the same period last year. One potential mitigating factor is the growth in non-hydro renewables, particularly solar generation, which has offset much of the decline in hydro generation since last year,” the report said.

EIA said that another reason for the high western electricity prices this summer was a sharp increase in natural gas fuel costs, particularly in Southern California.

The report noted that on July 24, Southern California Gas Company issued a system-wide curtailment order, which indicated that some natural gas-fired electric generators could have been restricted from operating on the following day. “The curtailment was issued because of forecast record-high temperatures and limited fuel availability from the Aliso Canyon storage facility. However, the restrictions did not need to be implemented on July 25 because electricity load was lower than expected,” the federal agency said.