January 11, 2023 - Average wholesale electricity prices at major trading hubs in the United States rose throughout much of 2022 and were, at times, volatile as a result of extreme weather events. The limited availability of coal to substitute for higher-priced natural gas also contributed to higher electricity prices.
Prices at all electricity trading hubs were higher in 2022 compared with 2021 except in the Electric Reliability Council of Texas (ERCOT). In February 2021, the average electricity price in ERCOT was $1,800 per megawatthour (MWh), pushing ERCOT’s annual average electricity price in 2021 higher than in 2022, due to Winter Storm Uri.
Data source: S&P Global Market intelligence
Four severe weather-related events caused major wholesale electricity price spikes in 2022:
The natural gas price is a significant driver of wholesale electricity prices because natural gas is often the highest-cost fuel for electricity generation, setting prices for the hours that natural gas-fired generators run. In January 2022, natural gas prices continued an upward trend driven by economic growth in Asia and constraints on pipeline and liquefied natural gas (LNG) exports to Europe from Russia. High international demand for natural gas increased U.S. LNG exports, causing natural gas prices to rise for domestic customers. Natural gas prices rose from $3.70 per million British thermal units (MMBtu) in early January 2022 to almost $10.00/MMBtu in late August 2022. Milder temperatures and increased natural gas production lowered both natural gas and electricity prices after the September heatwave through early November 2022. Natural gas prices started to rise again as colder weather began in the United States.
In addition to higher natural gas prices and severe weather in 2022, railroad and coal mine labor shortages constrained coal supply and delivery to power plants throughout the summer, limiting utility operators’ ability to switch from relatively expensive natural gas to cheaper coal-fired generation.