Please visit the Direct Energy Business online customer education center, Energy Insights, to view the Weekly Energy Market Update video for July 8, 2013. Receive weekly updates that are sent right to your email inbox.
The following is a summary of last week’s market activity and the market outlook:
Summer is here and all energy market participants in Texas – end-users, generators, traders and suppliers – are nervous about the market. Will this summer be a boom or a bust when it comes to Texas energy prices? This affects customers that have not hedged this summer and are on an index product. It also affects customers looking to fix a term contract, which are impacted by near-term price trends.
Last year, the forward markets traded much higher in anticipation of a repeat of 2011, when prices skyrocketed to an all-time high. But it quickly became apparent that 2012 was going to be a bust and prices were low and lacked volatility. That was good news for customers that had not fixed their rate, but not for those that had bought power who regretted their decision. One thing is certain: the volatility of the Texas market is all built into the summer months, primarily July and August. Around the clock (ATC) wholesale energy prices for most months trade in the $30/ to $40/MWh range while the summer months trade in the $70/ to $80/MWh range. This premium is due to the risk of day-ahead (DAM) and real-time prices (RTSPP) spiking to the offer cap due to extreme heat.
Please visit the Direct Energy Business online customer education center, Energy Insights, to view my Weekly Energy Market Update video for May 20, 2013. Receive weekly updates that are sent right to your email inbox. The following is a summary of last week’s market activity and the market outlook:
• NYMEX futures closed up last week, offsetting the previous week’s declines. Prices were volatile throughout the week, with increases on Monday, Tuesday and Wednesday that were followed by a large decline Thursday (following a bearish storage report). Prices rose again Friday afternoon and there was uncertainty regarding the reason for the rally.
It’s that time of the year in Texas that everyone loves (or dreads): summer time! Hello grilling, swimming and running your air conditioner. Simultaneously, it’s also the time when your electricity bill skyrockets as you attempt to keep your home or business cool.
Two summers ago, many Texans experienced sticker shock as the state dealt with one of the hottest summers on record and in turn, electricity prices skyrocketed. The heat was unbearable and was made worse by the lack of rain. This year could be a repeat but only time will tell. The risks due to a hot summer are greater this year because the state’s drought situation has worsened over the past six months. Last year we didn’t experience that as the state saw a significant amount of rain specifically in the eastern part of the state which kept temperatures down and the ground moist which helped cap the radiation heating throughout the hottest parts of the daytime. It’s a good time to think about what you can do to protect yourself from the possible upcoming energy price spikes. Read more for some tips.
Since our last heat rates blog post was so popular, here is a follow up to help you further understand them.
#1 - The term “Heat Rate” can be used in many contexts. For a natural gas-fired power generator, it is a measure of the efficiency at which a plant converts natural gas into electricity as expressed in millions of British thermal units (MMBtu) per megawatt hour (MWh). The marginal heat rate refers to the economics for which power plants can be profitably dispatched based on current market conditions. For retail customers looking to buy electricity using a Heat Rate-type product, the Market Heat Rate is most important. This is simply the current price of power divided by the price of natural gas for a specific term and location.
For example, if power is trading at $40.00 per MWh and gas is $4.21/MMBtu, the market heat rate is 9.5 as follows. Here is the breakdown:
Heat Rate = Power Price ÷ Natural Gas Price
9.5 MMBtu/MWh = $40/MWh ÷ $4.21/MMBtu