The US Energy Information Administration (EIA) forecasts that prices in US wholesale electricity markets this summer will significantly increase over last summer’s prices. The EIA’s Short-Term Energy Outlook (STEO) forecasts that electricity prices in the Northeast regions (ISO New England, New York ISO, and PJM markets) will exceed $100 per megawatthour (MWh) between June and August 2022, up from an average of about $50/MWh last summer. EIA forecasts summer electricity prices will average $98/MWh in California’s CAISO market and $90/MWh in the ERCOT market in Texas.
Data source: US Energy Information Administration, Short-Term Energy Outlook, June 2022
Note: Wholesale electricity price data represent monthly average locational marginal prices during on-peak hours (Monday–Friday, 7:00 am–10:00 pm).
The STEO forecasts electricity generation and wholesale prices for 11 market regions in the continental United States. EIA forecasts wholesale prices for one price hub in each STEO electricity supply region. The wholesale price data in the STEO reflect the monthly average electricity price in each region during on-peak hours (Monday through Friday, 7:00 am through 10:00 pm).
Various factors determine wholesale electricity prices, but the cost of fuel for fossil-fuel generators is an important driver. Wholesale prices are especially tied to natural gas prices because natural gas-fired units are often the most expensive (marginal) generators dispatched to supply power. The natural gas price at the Henry Hub averaged $8.14 per million British thermal units (MMBtu) in May 2022, compared with $2.91/MMBtu in May 2021. EIA expects the price of natural gas delivered to electric generators to average $8.81/MMBtu this summer, up from $3.93/MMBtu last summer.
In past years, the electric power sector has substituted natural gas-fired generation with coal-fired generation when natural gas prices have risen. However, in recent months, coal power plants have responded less than in the past as an alternative source of generation, most likely as a result of continued coal capacity retirements, constraints in fuel delivery to coal plants, and lower-than-average stocks at coal plants.
EIA forecasts that the share of US generation from coal-fired power plants will decline from 25% last summer to 23% this summer, and natural gas’s share will remain relatively constant at 40%.
Other industry conditions that could lead to higher wholesale electricity prices this summer include the extended drought in the western United States. Although EIA expects a slight increase in hydroelectric generation in California this summer compared with last summer, the forecast of summer hydropower output remains relatively low. The restricted contribution of hydropower this summer will likely lead California to generate more electricity from natural gas and to import electricity from neighboring states.