Power Markets Update: What you should know about the recent run-up

Nov 15

Power markets update 11/16/2018: Markets are down today, by about $3.00/MWh on peak. All of our advice still holds.

Power markets today

Forward Power Markets 11/15/18

Markets are up dramatically over the last week. Forward power market- NYC November 15, 2018

Power markets are up dramatically over the past week– across the country. The graphic, shown above, shows the increase in forward markets in New York City. The picture looks much the same across the country. In New York City, the market is up 18% since the end of October.

What is happening?

According to market experts (see Bloomberg’s article “U.S. Natural Gas Holds Gains After Biggest Jump in Eight Years”), natural gas pricing, which sets the marginal cost for power, has spiked. This increase in gas prices is attributable to a colder-than-expected weather forecast, coupled with 15-year lows in natural gas storage reserves. Additional speculation suggests that exports of liquefied natural gas as well as oil market turmoil may also be impacting gas prices.

What does this mean to me?

We always counsel caution when it comes to market action and reaction. Do not panic. Power users and purchasers who are most impacted will typically be those who have a desire to fix their price in the near future, but haven’t yet. It is never wise to act when markets are up.

What is happening in index markets?

In the past few days, we have also seen an increase in day-ahead markets. Here is a graph showing the move in index power prices over the same time frame as the forward market move.

Day ahead index prices have also moved, but not as dramatically.

The average day ahead price for the period between October 29th and November 15th was $35.00/MWh ($0.035/kWh). And of the 433 hours between October 29th and November 15th, only 10 of those hours has prices >$55.00/MWh. In essence, what we’re seeing is an increase in volatility in index markets. We shall see if this volatility persists.

What should you, the purchaser, do about this?

Keep in mind that both forward and day-ahead markets have been low and not volatile for several years. Keep all this market information in context. Yes, natural gas markets are up to levels we haven’t seen in several years. But we have not seen much, if any volatility in that time frame. To learn more about price volatility and what it means to you, review this MWh article from earlier in the year (when we also experienced market volatility).

Bottom line for energy and finance professionals. Evaluate your budgets and review your costs compared to the market. Be aware of how your prior assumptions about budget and cost might change with new market information. Then, be prepared to act. But do not act in panic. Be measured and use data. 

Call us if you have questions and want to discuss how your costs and budgets may be impacted by these market moves. By selecting the button, below, you simply set up a call with one of our energy market experts.

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