Wholesale electricity prices in the Western United States are seeing a significant rise in response to a record heat wave forecast in the Southwest and Southern California. This situation led to the National Weather Service (NWS) issuing excessive heat warnings in its October 1 forecast discussion.
The expected high temperatures are due to an upper-level area of high pressure over the Four Corners region, creating extreme thermal conditions with highs ranging from 35 to 43 degrees Celsius. Minimum temperatures will also remain high, providing little overnight respite. According to CustomWeather data, the population-weighted average temperature is expected to reach 23.3 degrees Celsius on October 2 in the California Independent System Operator (CAISO) territory, well above the historical average of nearly 15.5 degrees Celsius for october.
The California Independent System Operator (CAISO) is forecasting a peak electrical load of up to 41,462 gigawatts on October 2, a 28% increase from the previous seven-day average. This forecast is significantly higher than the average peak load of 29,684 gigawatts recorded in October 2023. Anne Gonzales, a spokesperson for CAISO, told S&P Global Commodity Insights on October 1 that no flexibility alerts have been issued nor planned, specifying that the CAISO has not issued a flexibility alert since 2022. The CAISO’s historical peak load is 52.061 gigawatts, reached on September 6, 2022.
### **Energy demand management**
“CAISO is closely monitoring rising temperatures this week,” Gonzales said. “CAISO continues to forecast sufficient energy to cover demand throughout this week and does not anticipate any supply shortfalls. » In addition, no forest fire activity currently threatens infrastructure, she added.
Rising temperatures and forecast energy demands have led to a rise in wholesale electricity prices. On the Intercontinental Exchange (ICE), the daytime Palo Verde spot price advances by approximately $68 per megawatt hour (MWh) for delivery on October 2, an increase of almost 40% compared to the seven-day average precedents, according to data from Platts, a subsidiary of S&P Global Commodity Insights. Likewise, the Mead daytime spot price advances approximately $72.75 per MWh on the ICE, an increase of 47.5% from the previous average.
### **Increase in gas demand and prices**
Furthermore, the daytime SP15 spot price advances by approximately $54.25 per MWh for delivery on October 2 on the Intercontinental Exchange, an increase of nearly 62% compared to the average of the previous seven days, according to CAISO data. The daily balance week package advances to $47 per MWh and is offered at $50 per MWh on the ICE.
Total gas consumption in the state reached 5.6 billion cubic feet per day (Bcf/d) on October 1, up from 4.8 Bcf/d the previous seven days, representing the highest level high since September 9, according to data from Commodity Insights. PG&E’s city gate spot gas price increased to $4.65 per million British thermal units (MMBtu) for Oct. 1 flows, its highest level since mid-January, according to Platts data. It declined slightly to $4.10 per MMBtu for flows on October 2, but remains well above the average price of $3 per MMBtu for flows in the seven days to September 30.
The SoCalGas city gate price also hit an eight-month high at $3.42 per MMBtu for Oct. 1 flows, and increased further to $3.72 per MMBtu for Oct. 2 flows, according to Platts data. The average for the week through September 29 was $2.55 per MMBtu.
### **Impact on the energy market**
This increase in demand for natural gas reflects the increased need for electricity generation to meet the high energy demand due to the heatwave. Grid operators, like CAISO, closely monitor the balance between supply and demand to avoid any supply shortages. The absence of flexibility alerts indicates confidence in the system’s ability to meet increased demand.
High natural gas prices directly influence electricity production costs, particularly at gas-fired power plants, which contributes to the general rise in wholesale electricity prices. This situation highlights the vulnerability of the energy market to extreme weather conditions and highlights the importance of efficient management of energy resources to maintain price stability and supply.
### **Perspectives and measures taken**
Faced with these challenges, operators and regulators are seeking to optimize demand management and strengthen the resilience of the electricity network. Initiatives to improve energy efficiency and diversify renewable energy sources can help mitigate the impacts of future heat waves. Additionally, continuous monitoring of weather conditions and consumption trends is essential to effectively anticipate and respond to fluctuations in energy demand.
### **CATEGORY AND THEMATIC**
– **Category:** Natural Gas
– **Theme:** Sector analysis
META DATA
Meta description: Wholesale electricity prices are rising in the Western United States due to a record heatwave, leading to higher energy demand and natural gas prices.
Long Tail: heatwave|energy prices|energy demand|weather forecasts
Countries Mentioned: United States
Organisations et Sociétés Mentionnées: California Independent System Operator|US National Weather Service|PG&E|SoCalGas|S&P Global Commodity Insights
Tags: heatwave|energy prices|energy demand|weather forecasts|gas consumption
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