Monday, January 14, 2013

Stunning Fact: 2012 Wholesale Electricity Peak Prices Plummet 15%-43%

In 2012, the average wholesale price for spot market day ahead electricity fell from 15% to 43%.  Wow!  The 2012 plunge in spot wholesale electricity prices is heavily driven by a 31% decline in the 2012 spot price of natural gas, but low gas prices are not the only cause.

Other contributing factors in the power price plunge are large amounts of energy efficiency and demand response, coming into many wholesale electricity markets that softens electricity demand, including peak demand.  For example, the PJM power market now has more than 15,000 megawatts of demand response.

Large amounts of new wind and solar generation, including behind the meter solar systems, are still another factor pushing prices downward.  Wind and solar installed capacity added in 2012 will generate an amount of electricity equal to 7 Three Mile Island nuclear units.  That's a lot of new supply.

Also wind and solar have the lowest production costs of any generation in the power markets. They are pure price takers, meaning that they bid zero and take the market clearing price for their electricity production.  By doing so, wind and solar especially put downward pressure on market prices and save consumers substantial money.

In the coming year, natural gas prices are projected to increase about 30%.  That would suggest wholesale power prices may tick up in 2013 from 2012 bargain levels, though even more demand response, solar, and wind are entering the markets this year.  Their entry will limit whatever increases that may occur.

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