Extremely high power costs projected for summer heat trend

Extremely high power costs projected for summer heat trend

Consumers are at the mercy of Mother Nature this summer, especially if warmer-than-normal temperatures persist throughout the next few months. Plus, analysts have said recent action with prices in the gas market could also be a forerunner of conditions to come.


Forecasters have said supply is currently tight in the U.S. market, with the amount of gas in storage being at an unusually low level. The cooler spring weather followed by extreme heat has created more demand than normal at this time of year and is expected to strain power grids across the U.S. 


Western Farmers Electric Cooperative (WFEC) staff have been closely monitoring the predicted market conditions, which have worsened in recent weeks. It is important to realize WFEC fuel costs are a significant portion of the wholesale cost of power to WFEC’s cooperative members. Increases or decreases in this cost component are typically passed on by member cooperatives to their respective consumers through a Power Cost Adjustment (PCA). 


WFEC has carefully structured a portfolio of diverse power supply resources to provide lower-cost renewable energy and a solid fleet of resources allowing it to generate additional energy when needed. All SPP resource adequacy requirements and obligations have been - and will continue to be - met by WFEC.


Although there are several components contributing to the overall cost of WFEC fuel, the one with the most impact on current pricing is the wholesale market settlement experienced in the Southwest Power Pool (SPP) Integrated Marketplace, in which WFEC participates. As a regional transmission organization (RTO), SPP ensures the reliability of the bulk electric system and determines when conditions exist requiring further action from power suppliers across their 14-state region, extending across the country’s mid-section. 


 The SPP is not alone in facing near “crisis level” summer conditions, as several regional transmission organizations are also closely monitoring all factors contributing to sufficient generation and higher pricing. If the power grid becomes unstable or overloaded, temporary controlled manual load sheds, or periodic power outages, may be used as a last resort to keep the system in balance. WFEC is ready should this event occur. 


Ways to help: 
As summer temperatures continue to soar, energy bills will be at their highest, particularly at times of the day when electricity consumption is the greatest. In practical terms, typically the hours between 2 and 8 p.m. not only have the most usage, but also have the highest-priced costs.


During this critical summer timeframe, all or some family members are typically at home due to school breaks, or just getting off work and coming home. Naturally, the first instinct - lower the thermostat for a cool and comfortable setting. Next comes activities, such as laundry, running the dishwasher, watching television, playing video games and other related tasks. 


This onset of additional energy usage is occurring in many homes simultaneously during this 2 to 8 p.m. period, creating a need for additional generation at a time when costs are at their highest. The less energy required to meet this demand - the better, as it helps avoid paying for higher-cost power in the heat of the day.     


Being conscientious with energy use will not only be beneficial for the power provider, but also for the distribution cooperative and its members, as it will impact future electric bills. Finding ways to curb usage during these critical times can be a challenge, but doing so is a valuable step in the right direction to help conserve energy overall, as well as taking some of the strain off the power grid. 


Fuel Costs:
Specifically for WFEC, fuel base indications continue for higher than recent historic fuel base costs, with increased megawatts (MW) and megawatt-hour (MWh) sales. The fuel base remained around $45 MWh through the spring, followed by an increase to at least the $50 MWh range for the summer, before projected to soften to the $47 MWh range by fall.


The fuel cost (actual May for June) is 50 mills per kilowatt-hour (kWh), with a fuel base of 52 mills estimated for next month.


Southwest Power Pool market prices are in the $70/MWh range, which is higher than recent past months. Expectations are for the SPP market to increase significantly through the summer months. In fact, June and July forward prices are well above $100/MWh.


Currently, natural gas price futures continue to show prices at these levels through March 2023. 

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