Wholesale on-peak electricity rates set to jump this winter by as much as 60 percent, EIA says
Energize Weekly, December 14, 2022
On-peak wholesale and retail electricity prices are set to rise across the country this winter, with some regional wholesale rates jumping as much as 60 percent compared to last winter, according to the U.S. Energy Information Administration (EIA).
“We forecast wholesale prices for on-peak power to rise in all areas of the country during the winter months as the weather becomes colder,” the EIA said in its December Short-term Energy Outlook.
The agency is projecting on-peak wholesale prices for most regions will average between $60 and $80 per megawatt-hour (MWh) between December and February.
New England is expected to be hardest hit with prices that could average in excess of $180 a MWh, with winter peaks of more than $200 a MWh.
One factor driving prices is the region’s dependence on imported liquefied natural gas (LNG) to generate about 28 percent of its supplies.
“Increased global demand for LNG in response to war in Ukraine has created more volatility this winter, leading to higher prices,” ISO New England, the region’s grid operator, said in its winter reliability assessment.
The ISO New England assessment said the region “should have adequate electricity supplies under mild and moderate weather conditions this winter.”
“If long periods of severely cold weather develop, we’ll lean on our forecasting tools to identify potential problems early enough to take proactive measures,” Gordon van Welie, ISO New England’s president and CEO, said in a statement.
The EIA said it also expects higher prices in the New York (NYISO) and mid-Atlantic (PJM Interconnection) markets, with NYISO seeing a 54 percent year-over-year increase to about $150 a MWh and a 62 percent rise in the PJM to just less than $100 a MWh.
“If significant market stressors occur, such as periods of extreme cold weather or fuel supply problems, wholesale prices could be significantly higher than forecast,” the agency said.
The regions that will see the smallest, though still substantial, increases are the California ISO, 33 percent, and the Electric Reliability Council of Texas, 42 percent.
The EIA forecasts retail electricity rates rising this winter by about 6 percent compared to last winter, with a December-February average of 14.5 cents a kilowatt-hour. Prices will vary from almost no change in the West North Central region to 18 percent in New England.
“Retail prices grow less than wholesale prices because of regulatory and contractual factors that vary widely across the United States,” the EIA said.
In its energy outlook, the EIA also is projecting significant shifts in electricity generation for 2023.
Even with an expected decline in natural gas prices next year, the EIA expects natural gas’ share of electric power generation to fall to 37 percent in 2023 from 39 percent this year, as more renewable generation comes online.
Wind and solar generation are set to increase to 16 percent of total generation in 2023, a 2 percent increase over 2022.
“Increasing generation from renewable energy, along with retirements reducing the available capacity of coal-fired power plants, contribute to our forecast that coal’s generation share will fall from 20 percent this year to 19 percent in 2023,” the EIA said.
