Natural gas plunge helps push down wholesale electricity prices

Natural gas plunge helps push down wholesale electricity prices Winter weather and heating needs always have an impact on electricity rates, but it is not always as dramatic as the recent mild temperatures combined with a growing natural gas production surplus. Bloomberg reports that the growing reliance on natural gas-fired power plants has pushed wholesale electricity rates down 50 percent since a recent high in 2008.

The energy market saw a massive spike in prices in 2008, with the largest wholesale electricity market in the U.S. seeing rates as high as $87 per megawatt-hour. Prices declined quickly thereafter as the financial crisis dragged down global economic activity, but another process has been continuing that trend in the face of increasing demand.

Investment in natural gas developments has seen gas fall to its lowest price in more than two years, reaching as low as $2.44 per million Btus on Tuesday, January 17. This price drop has continued even as gas-fired generation plays a more prominent role in the electricity sector.

The U.S. Energy Information Administration reports gas power plants accounted for nearly 24 percent of all electricity generation in 2010, up from only around 15 percent in 1999.

Bloomberg notes the continuing decline has led to the cancellation of both wind and coal developments.

Closer analysis on the natural gas futures market can be found at PennEnergy's Research area.

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