Study: U.S. has enough juice for summer heat wave

July 21, 2011 — Although temperatures are soaring to 100-degree levels throughout the United States, much of the country seems to be well-supplied with electricity, according to Platts, a global provider of energy, petrochemicals and metals information.

Overall electricity demand has been hard-hit in general since the economic recession. 2009 saw the biggest decline in electricity demand in 60 years, and it hasn't fully recovered.

During peak demand times, smaller less-efficient generators, called peakers, are called on to help meet demand and being the highest cost generator, they tend to establish the price of power.

Those peakers are natural gas fired and historically low natural gas prices are keeping the cost of operating those units lower than they would have been just a few years ago.

The growth in demand response in the power markets may also be keeping a lid on prices. Demand response services allow large consumers, usually industrial or commercial, to get paid for reducing power usage during times of peak demand. 

On the supply side, electricity generating capacity has been built up over the last decade, after shortages led to major price spikes during 1998-2000.

The Eastern and Western Interconnections have had little trouble so far keeping up with demand this summer. However, the Electricity Reliability Council of Texas, which is more geographically isolated has asked for conservation from consumers after the unexpected outage of a nuclear power plant the week of July 11.

Searing heat in the Northeast propelled wholesale natural gas prices higher by more than $2 per million British Thermal Units on Wednesday, June 20, with prices in New York City topping $9/MMBtu – their highest level in five months, according to data from Platts Gas Daily.

Prices in New England jumped almost as much, as cooling demand spiked due to near-record temperatures forecasted for Thursday from Boston to New York to Washington, D.C.

The Mid-Atlantic's key power delivery point, the PJM Western Hub, saw power for peak hours trade Wednesday, June 20, for Thursday delivery at $152.25 per megawatt hour and Friday delivery for $155.50/MWh, data from Platts Megawatt Daily shows.

This is still below the PJM Western hub June 8 price of $197/MWh. Markets for real-time energy, utilized to balance supply and demand intra-hour, saw prices spike to more than $300/MWh for short intervals through the day Wednesday.

Overall, wholesale power prices have climbed with the high temperatures, but have actually remained relatively low given the degree of the extreme weather.

Most residential consumers will not see the increase in power prices experienced in the wholesale electricity market this week. Wholesale prices are paid by utilities to purchase power from generators to meet the needs of their customers. Retail customers pay a fixed price reviewed by state regulators.

Utilities pass on the cost of buying electricity during a heat wave across a longer period of time. An increase in an individual consumer bill this month would only come from increased usage and not an increase in base prices.

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