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Heat drives up ERCOT spot, forward prices

9:11 AM, Jul 26, 2011   |    comments
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Energy Trader (26-Jul-11)

By Mark Watson, John-Laurent Tronche

Electric Reliability Council of Texas next-day and August forward prices have jumped sharply in the past few days as temperatures led demand higher.

ERCOT next-day peak prices gained as much as 40% in for-Tuesday trading on Intercontinental Exchange.

Extreme weather typically has less effect on forward prices, but industry observers said last week's National Weather Service release of a 30-day outlook for August prompted traders to bid up forward prices sharply - up by almost 25% in the ERCOT North hub, for example.

Forecasters called for temperatures to rise into the mid-90s and low 100s across Texas today.

ERCOT expects load to peak at 64,834 MW, 1% more than Monday's peak demand. The all-time peak power demand record across the grid operator's footprint is 65,776 MW, set in August 2010.

Thursday's National Weather Service outlook for August forecasts "above normal temperatures ... from parts of the southwest across the southern and central plains, as far north as Kansas and eastward from the lower Mississippi valley to the south Atlantic coast."

Central and eastern Texas is in the region with "enhanced chances for below median precipitation," the forecast said.

Forward power traders typically pay close attention to the monthly forecast that usually occurs on the third Thursday of the month, said Jim Carson, CEO of St. Paul, Minnesota-based RisQuant Energy, an electricity market consultancy.

"That is the one that people take seriously," he said. "That's when the market all of a sudden comes to realize that this is not going away."

Monday's forward prices continued the climb, with ERCOT North jumping $14 to $86.50/MWh, ERCOT Houston surging $9.50 to $76.76/MWh, ERCOT South gaining $9 to $72.50/MWh and ERCOT West August rising $3.75 to $79/MWh on ICE.

Neil McAndrews, an Austin, Texas-based consultant to electric utilities, said, "If it doesn't rain, these temperatures will continue."

"This summer looks like it will be in the top 10% hottest summers over the past 100 years in Texas," McAndrews said. "Higher forward prices will eventually impact retail prices."

A. Katharine Lusk, principal of AKL Wind Energy, of Big Spring, Texas, said she expects these August forward prices are sustainable through the end of July. "No other choice for stakeholders," she said.

"No relief in sight on weather, low wind speeds, excessive use by the consumer," she said.

Carson said the higher prices did not extend into 2012 and beyond because they are purely weather related.

On the day-ahead market, West hub peak power was the most expensive, trading around $120.50/MWh on ICE, up $30.50 on the Platts index for Monday power. North hub prices were trading around $118.50/MWh, up $33.75 or 40% compared with the next-day index for Monday. The price for Houston hub was trading around $108.25/MWh, up $25.

South hub next-day peak added $20.75 to trade around $99.25/MWh.

Off-peak power also gained some ground, although not as much as peak prices. Off-peak prices gained between 25 and 75 cents to trade in the low-$30/MWh range.

Mark Watson,John-Laurent Tronche

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