Electricity prices in the United States were lower in 2023 than in 2022 due to lower natural gas prices and moderate electricity demand. According to energy market analysts at S&P Global Commodity Insights, it will be important to monitor coal-fired power plant closures and hydroelectric capacity in the western US going forward.
After a relatively mild winter in January and February, “things bounced back in March” and, in April, electricity demand fell by around 1%, said Shayne Willett, electricity market analyst at S&P Global. “We’ve seen a suppression in wholesale electricity prices, both on-peak and off-peak, primarily due to the natural gas environment, but we also have additional factors such as the increase in renewables and the hydro situation,” said Willett.
Coal-fired electricity at “lowest level in recent history
Total U.S. coal production for 2023 is expected to exceed 580 million tonnes, and first-quarter deliveries reached over 150 million tonnes. “We expect a moderation in the second quarter”, but production should still exceed 140 million tonnes, notably with the easing of transport constraints, he said, referring to possible rail strikes in 2022. Demand for coal-fired electricity in April was around 23 million tonnes, compared with 27 million tonnes since March, said Willett.
Coal-fired electricity generation in the lower 48 states is “falling to its lowest level in recent history”, while total electricity production is rising, he added. More than a decade ago, coal accounted for 131 GW, or nearly 34% of total electricity generation, and by April 2023, coal generated an average of 59 GW, or just 14% of total generation, Willett said. By May 2027, analysts expect coal-fired power generation to fall to 37 GW. “In the short term, we expect coal to pick up again this summer and winter, during peak periods,” he said.
As far as natural gas is concerned, analysts expect Henry Hub prices to rise to $2.45/MMBtu in May and remain around $2.66/MMBtu for the rest of the summer. In the longer term, gas prices are expected to average around $3.50/MMBtu in 2025 and $5.00/MMBtu in 2027. With gas production growth outstripping demand, analysts believe the market will be well supplied, with production averaging around 3.6 Bcf/d, while demand is expected to grow by around 1.3 Bcf/d.
“We expect to close over 40 GW of coal capacity by 2027, with the Mid-Continent region leading the way with over 17 GW,” said Willett, adding that by 2023, the coal fleet stands at over 260 GW.
The role of heavy precipitation
Another big story this year was the heavy rainfall in the western United States, where precipitation levels were well above normal. California, in particular, recorded snow levels 235% above normal, he said. This is expected to drive hydroelectric generation this summer to levels not seen since August 2019, given the extreme drought conditions that have plagued the region in recent years, said Willett.
Increased hydroelectric production is likely to come at the expense of gas-fired power generation, and the region is currently experiencing an early-season heat wave, which accelerates snowmelt and therefore affects hydroelectric production, he explained. In April, hydropower accounted for less than 50% of total electricity generation in the Pacific Northwest, which was unusually low, but by May 24, hydropower generation had tripled from those levels, Willett said.