Webinar Analysts: Winter Weather Outlook, REC Market Trends and Wholesale Price Formation
During Constellation’s October Energy Market Intelligence Webinar, the Commodities Management Group (CMG) provided an overview of current and future factors shaping the energy landscape, including winter weather outlooks, natural gas fundamentals, REC market trends, RGGI auctions and wholesale price formation and drivers.
Weather
Despite a recent cold front across the South, temperatures nationally remain well above normal, and October is on pace to be the fourth-warmest on record.
The main driver of weather is currently El Niño. The panelists discussed a forecast of about 2,285 heating degree days (HDDs) this winter. That would make it the fifth-warmest winter on record, well below the 30-year normal of 2,549.
For energy buyers, the mild outlook is pressuring prices to the downside, but even a short cold snap can move prices. Last winter’s 10- to 12-day cold stretch in February and Winter Storm Uri both showed how a brief bout of extreme weather can wreck energy budgets in an otherwise mild season.
Natural Gas Fundamentals
Domestically, natural gas injections have begun to lag the five-year average, with end of season projections landing around 3.88 Tcf. This is considered to be “comfortably adequate” as the winter months approach. Production was down 2.4 Bcf/d month-over-month at the time of the webinar, however, is still relatively strong because high oil prices support associated gas and natural gas liquids prices, which are profitable for producers. Falling production in the East is price driven and relatively short term, but nonetheless supportive of near-term pricing action as the shoulder month of October winds down.
REC Markets, Renewables & Impact on Power
Affordability pressures have caused some states to weaken their Renewable Portfolio Standard (RPS) programs, which has pushed REC (renewable energy certificate) prices down and slowed renewable projects, even though some states’ long-term targets haven’t changed. The panelists covered three primary states in PJM that have faced pressure around their RPS programs and how each state is managing affordability while trying to keep their sustainability goals in-tact.
Explainer Series – Marginal Energy Cost
The panelists then covered marginal energy costs and how they are calculated as part of an “explainer” segment of the webinar to better educate listeners on what factors impact their energy costs. Marginal energy costs start with fuel and a plant’s heat rate, then layer on carbon, variable operating costs, and congestion. For a typical gas combined-cycle unit, fuel (about $28/MWh), a RGGI carbon adder (about $15.30), and operating costs (about $3) total roughly $46/MWh. During extreme cold, constrained gas supply pushes oil-fired peakers onto the margin, where fuel alone can approach $380/MWh and carbon costs double, explaining sudden New England price spikes. Congestion adds localized premiums, such as +$12 in Dominion versus –$27 in Northern Illinois. The takeaway: lower gas prices don’t guarantee lower power prices everywhere, because regional generation and transmission constraints matter.
Market Trends and Temperature
The webinar concluded with a look at inflation-adjusted NYMEX settlements, forward power charts, the “Market Temperature” and other factors affecting the energy market.
The webinar team will host the next Energy Market Intel Webinar on Wednesday, November 18 at 2 pm ET. Constellation will offer detailed and timely updates on factors affecting the energy landscape, such as weather, natural gas storage and production and domestic and global economic conditions. Register by visiting www.constellation.com/marketintelwebinar.
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Disclaimer: This summary is provided by Constellation for general informational purposes only and reflects market commentary, forecasts and views expressed during the webinar as of the date presented. It does not constitute, and should not be relied upon as, legal, financial, investment, tax, trading or procurement advice, or as a recommendation or offer to buy or sell any energy product or service. Weather forecasts, price estimates, market projections and other forward-looking statements are based on assumptions and information available at the time and are subject to significant risks and uncertainties; actual results may differ materially. Figures cited are approximate and illustrative. Constellation makes no representation or warranty, express or implied, as to the accuracy, completeness or timeliness of this information, undertakes no obligation to update it, and disclaims any liability for any loss or damage arising from its use. Past market performance is not indicative of future results. Readers should consult their own advisors before making energy purchasing or other decisions.