Extreme summer heat and past prices could point to challenging winter months
Extreme heat, high electricity demand, and high prices for natural gas and electricity were the recipe for a summer of energy challenges across the United States, especially in Texas.
Average temperatures from San Antonio to Houston to Austin were five to eight degrees above normal through July. Not surprisingly, the hot conditions led to record demand for electricity to help cool things down. When ERCOT, the grid operator that serves the majority of Texas demand, set an all-time system peak record of 80,148 MW on July 20, it was the eleventh time the grid set a new demand record this summer.
Electricity demand approached available supply during May and July heat waves, when widespread windless conditions led to low wind energy output. In May, scarcity pricing emerged, reaching the ERCOT price cap of $5,000/MWh in parts of Texas. During the July heat wave, electricity prices frequently topped triple digits. The average price across ERCOT trading hubs for electricity in the day-ahead market during the summer of 2022 was more than $100/MWh, compared to about $41/MWh for the summer of 2021.
In the Northeast and New England, residents faced spreading drought conditions as well as spurts of record heat and energy demand. In early August, Northeast cities approached 100 degrees, leading to high cooling demand. Customers of one Boston-area electric utility suffered blackouts due to challenging grid conditions. Continuing the trend seen elsewhere, ISO New England prices in July were 150% higher than a year ago.
Whether in Texas or New England, high heat was the catalyst to drive temporary power price spikes, but the high cost of natural gas created a higher baseline price of electricity. Already up compared to the start of summer last year, spot gas prices surged to 14-year highs in late August, topping $10/MMBtu briefly.
This increase has been driven by two main factors:
- Power plants used more natural gas supply to serve peak electric loads during the summer.
- There’s been a surging demand for gas production in Europe, as geopolitical unrest and fears of winter shortages grow.
What we know about this winter season
The National Oceanic and Atmospheric Association (NOAA) forecasts a strong probability of above-average winter temperatures across the southern tier, the Northeast and New England. NOAA says there’s also a strong probability of drier-than-normal conditions across the southern tier, including Texas.
While warmer and drier conditions could reduce demand for electricity and gas this winter, winter storms could create stress on the electric grid and result in surging prices.
This winter, though, natural gas prices will almost certainly be the main story. With the U.S. capacity to export gas overseas growing, the commodity is more global. A cold winter or escalating geopolitical events in Europe could impact U.S. gas prices. This could also lead to supply shortages in certain areas in the Northeast, which competes with Europe for liquefied natural gas (LNG) supplies.
We’re here to help
With the relative certainty of higher gas prices and the uncertainty of winter weather, now is the time to take action to mitigate the potential for painful winter energy bills. From tailored energy supply strategies to energy efficiency, NRG can help your organization plan and implement an energy approach to beat the cold.
Contact us today to learn more.
