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Energy Market Update: November 14, 2019

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Across the country, the same set of factors influence regional electricity prices. If that's the case, then why do prices vary, sometimes drastically, from region to region?

Join Direct Energy Business Strategist Tim Bigler to learn how your state stacks up.


Volatility in the energy markets is nothing new.

In the past few months, however, a significant divergence has occurred between regions, with a cluster of regions exhibiting prices above the $32/MWh level and another cluster exhibiting prices well below that. Only one region (ERCOT) has moved up—from the low price cluster to the high price cluster—since July, and that was due to differences in how the electricity market is regulated in that region.

A combination of related factors have dictated energy market behavior in 2019.

First, coal power plant retirements nationwide are taking more coal out of the equation every year.

Second, natural gas is largely stepping up to fill demand. This affects prices because new natural gas plants are more efficient, and use less gas to generate the same amount of electricity; meanwhile, the U.S. is producing more gas than ever before. The introduction of increased efficiency and abundant gas appear to be anchoring the market somewhat, but a new reliance on gas also means that when the price of gas rises, regions sensitive to that factor will rise as well -- hence the current divergence in prices from region to region.

Read on to see how your region is behaving with winter around the corner.*


NEPOOL (New England)

New England is highly dependent on natural gas for energy, and unfortunately this region is exhibiting the highest gas prices in the world—a full $3/MWh higher than the second-most-expensive Japan/Korea markets. Current prices are lower, however, than the $42+/MWh seen around this time last year.


CAISO SP15 (Southern California)

Prices in this region climbed steadily throughout 2018 and remained elevated during the first half of this year, due in part to pipeline issues and consequently high natural gas prices. They have since leveled out and look to remain low relative to last year’s spike.


NYISO Zone J (New York City)

Prices here haven’t done much in a couple of years—they’re high, which New Yorkers are used to.


ERCOT (Texas)

The summer heat wave drove demand way up in Texas, and because ERCOT has no capacity market and the system’s reserve margin remains low, the market saw fit to introduce a significant risk premium into this region. Long story short, it has not been a buyer’s market in ERCOT.


PJM West Hub (Mid-Atlantic)

While prices in this region appear to have increased since July, they are actually in the same range that they’ve occupied since early 2017. The recent increase is minor, and overall volatility in this region is comparatively low.


NYISO Zone A (Western N.Y. State)

This region saw a major price spike from late 2018 into early 2019, but prices have retreated somewhat since then. Recent months have seen little change, with inexpensive gas potentially leading to lower prices in the near future.


COMED (Chicago)

The persistent influence of coal, plus new renewable energy projects and inexpensive gas in this region are keeping prices quite low in this region. Nothing is promised, of course, but it’s difficult to imagine prices dropping much lower than current levels.


*All prices ATC, unweighted for load shape, and for informational purposes only.

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Posted: November 14, 2019