High temperatures, fuel constraints pushed western electricity prices to a 10-year high this summer
Energize Weekly, October 3, 2018
High temperatures and tight fuel supplies pushed wholesale electricity prices in the western U.S. to their highest levels since 2008, according to the federal Energy Information Administration (EIA).
Temperatures were warmer than normal across the West. Portland, Ore., for example, posted 29 days of temperatures higher than 90 degrees from the beginning of June through the end of August, compared to 10 days in the average summer.
California set a record for monthly average temperature in July, surpassing the previous 1931 record, with a statewide average of 79.7 degrees. The high temperatures across the region led to “relatively high demand for electricity,” the EIA said, particularly at the end of July.
On July 24 and 25, the California Independent System Operator (CAISO), which runs the grid serving most of the state and wholesale power markets, issued a “Flex Alert” to customers asking them to raise their air conditioners to 78 degrees or higher and to avoid using appliance during peak hours.
The peak load for the Western Interconnection, which includes the Northwest and Southwest, as well as California, reached 139.4 gigawatts on the evening of July 24—the highest level since the EIA began compiling data in mid-2015 for its U.S. Electric System Operating survey.
The high temperatures and electricity demand pushed prices to levels not seen in 10 years. At CAISO’s trading hub, which serves Southern California, wholesale prices hit $377 a megawatt-hour on July 24.
The same day at the Mid-Columbia hub, between Oregon and Washington, serving the Northwest, prices averaged $230 a megawatt-hour, while prices at the Palo Verde hub in Arizona reached $291 a megawatt-hour on July 25. Both prices were the highest posted since 2008.
In August, hot weather kept prices high and pushed sales at the Mid-Columbia hub to a record $255 a megawatt-hour on Aug. 7. CAISO’s wholesale peak-period electricity averaged $101 a megawatt-hour in July, the highest prices since the day-ahead market began trading in 2009.
At the same time temperatures were soaring, drought conditions in many western states led to a drop in conventional hydroelectric. In California, while hydro output was just above the five-year average for the first half of the year, it was down 47 percent compared to the same period in 2017. The drop in hydropower was in part offset by an increase in solar generation and other renewable sources.
The West also faced an increase in prices for natural gas for fueling power stations. Southern California was particularly hard hit by price hikes. “On July 24, natural gas prices at Southern California Gas Company’s (SoCal) Citygate, where natural gas enters SoCal’s local distribution system from the transmission pipeline, averaged $39 per million British thermal units (MMBtu), compared with an average price of $8/MMBtu the previous week,” EIA said. Prices at the SoCal border hub with Arizona jumped to $15 MMBtu on July 24 from $2.90 MMBtu the week before.