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The US West power market is experiencing a significant downturn with prices for forward contracts approximately 50 per cent lower than year-ago packages.
According to S&P Global Commodity Insights, this decline is attributed to weaker gas forwards and the influence of El Nino weather conditions expected to persist into spring, impacting temperature patterns and overall demand. El Nino conditions, which usually span from January to March, often result in increased rainfall in the US Southwest and above-normal temperatures. The three-month outlook, as projected by the US National Weather Service's Climate Prediction Center, signals a higher probability of above-normal temperatures across most of the Western US. In the aftermath of El Nino projections, the SP15 on-peak January contract concluded at USD 55.75/MWh, marking a 79.4 per cent decrease from its 2023 counterpart. The February package is currently valued in the low USD 50s/MWh, reflecting a 70 per cent drop from the same period last year, while the March package is in the mid-USD 30s/MWh, down by 55.4 per cent. Gas forwards mirror this trend, with the SoCal January contract recording a 97.9 per cent decline from the 2023 contract, concluding at USD 3.779/MMBtu. The February contract is approximately USD 4.063/MMBtu, marking a 78.9 per cent reduction, and the March contract stands at about USD 2.816/MMBtu, down by 63.2 per cent. Gas plants consumed an average of 1.815 Bcf/d in December to generate 267.167 GWh/d, indicating a 0.66 per cent decrease from November and an 11.2 per cent drop from the previous year. In spot markets, power prices saw a substantial year-over-year decrease. SP15 on-peak day-ahead locational marginal prices averaged USD 43.49/MWh in December, an 83 per cent drop from the previous year and 11.2 per cent below November prices, according to California Independent System Operator data. Spot gas prices also contributed to the decline, with SoCal city-gate averaging USD 3.554/MMBtu in December, down 88.4 per cent year on year and 40 per cent lower month on month. In the Northwest, Sumas spot gas recorded a 90.6 per cent year-on-year decrease, averaging USD 2.669/MMBtu. The decline in spot gas prices is seen as a driving factor for the lower average spot power prices month on month in December. Thermal generation maintained its position as the leading fuel source at 46.1 per cent of the total fuel mix in December, consistent with the previous year. Solar generation witnessed an increase of nearly 6 percentage points, averaging 14.7 per cent of the mix. Hydropower remained strong, comprising 8 per cent of the December fuel mix, a 2-point increase from the previous year. Total generation decreased nearly 8 per cent from the previous year, averaging around 23.4 GWh/day. Peakload slipped 2 per cent year on year, averaging 27.254 GW in December, according to CAISO data. In the Northwest, peak load decreased nearly 11 per cent year on year, averaging 7.89 GW in December. Hydropower dominated the fuel mix at almost 74 per cent, followed by nuclear at 12.3 per cent, thermal at 9.6 per cent, and wind at 4.3 per cent. El Nino expectations for the Northwest, leading to warmer temperatures and drier precipitation, resulted in a population-weighted temperature increase of 10 per cent above normal in December. This led to 27 per cent fewer heating-degree days year on year. (ANI)
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