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U.S. heat wave and its effect on the energy market

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Yesterday, I read a news release distributed by the ISO about how the sweltering heat could push power demand to a near-record level in the Northeast U.S. Last night, there was a news story on CBS Evening News about power shortage worries in the same region due to the heat wave.

Summer is here and energy experts have been preaching wariness of hot weather and real-time spikes. The concerns have been most common in the Texas market, especially since the offer cap was increased to $5,000/MWh as of July 1. However, July temperatures for Texas have been below normal due to clouds and rain. And while there have been a few hourly intervals near $500, these high prices have not been sustained and have not come close to the new cap. An additional result has been falling forward prices for August, which may present an opportunity for customers looking for a fixed price.

But there has been heat and it’s hitting the Northeast U.S. this week. Day-ahead prices are averaging more than $100 for many PJM markets due to temperatures in the 90’s. New England prices are experiencing similar behavior. But the biggest impact has been in New York and not just in New York City (Zone J). On-peak dailies for both Zone A (Buffalo) and Zone J averaged $105 for Tuesday delivery. And real-time prices for Monday were $215 for Zone J and $190 for Zone A. Prices for Western New York are typically much higher. The New York ISO demand was forecasted at 33,300 MW for Tuesday, but slightly below the all-time record of 33,939 MW that was recorded on August 2, 2006. And spot gas prices spiked in both New York and New England due to heat and rising power demand.

Summer is less than half over and there is still significant risk. This applies to customers riding an index market as well as the impact that short-term price volatility has on long-term prices.

Finally, don’t forget any demand management initiative that you can implement to reduce your consumption during these potential demand days. It can impact your energy and capacity prices. For customers in the Northeast, this week’s usage may significantly impact your future energy and capacity price if it is deemed a peak day by the ISO.

Posted: July 17, 2013