Federal Regulators Warn of Summer Power Price Increases
By Christian Roselund
The day after NERC issued its warning of higher probabilities of power outages in summer 2022, the Federal Energy Regulatory Commission (FERC) released a report warning that wholesale electricity prices are likely to also be higher this summer. FERC’s Summer Energy Market and Reliability Assessment cites higher natural gas prices along with forecasts of hotter temperatures and a slight increase in electricity demand as the primary causes of these electricity price increases.
This assessment is backed by market data. Notably, natural gas futures prices for June through September 2022 are averaging $7.06 per million British thermal units (MMBtu), up 88% from last year’s settled average price. And as of 13 May, wholesale electricity futures prices have increased between 77% and 233%. In the territory of the largest grid operator in the United States, PJM Interconnection, summer futures prices are averaging $130.07 per megawatt-hour, up 173% from last year’s settled prices.
FERC identifies an increase in LNG exports as the prime cause of higher natural gas prices. As explored in previous reports, an increasing share of U.S. LNG is headed to European markets which are attempting to wean themselves off Russian gas. The combination of modest increases in U.S. natural gas demand and growing LNG exports is outstripping growth in domestic gas output.
And as natural gas is in many regions the marginal fuel that sets wholesale power costs, higher gas prices drive wholesale power prices higher. These wholesale power prices will also result in higher consumer prices, although the effect is less dramatic as wholesale power is only a portion of
customer bills.
Increase in wholesale power prices create better market conditions for renewable energy to compete. However, as explored in previous articles wind and solar are facing their own challenges, which include both lengthy delays for interconnection and supply chain challenges. The challenges for solar are particularly difficult, given that the anti-circumvention investigation has largely cut off the largest source of PV modules for the U.S. market.
Read more:
Source: Summer Energy Market and Reliability Assessment 2022 (FERC)
News coverage: FERC to monitor gas, power markets for manipulation as forward summer electricity prices jump up to 233% (UtilityDive)
