Higher natural gas prices, cold weather bumped up average U.S. wholesale electricity prices in 2021
Average wholesale electricity prices at major United States trading hubs trended higher this past year due to increases in power generation fuels in general, and natural gas in particular, as well as issues with electricity supply caused by particularly chill February weather.
Natural gas tends to be a major component in electricity pricing because of its role as the highest-cost fuel of generating units used by operators to provide electricity. While the country has benefited from relatively low prices for years, natural gas prices hit an estimated $5.04 per million British thermal units (MMBtu) in the fourth quarter of 2021. Comparatively, natural gas costs averaged less than half that in 2020, at $2.40/MMBtu.
According to the Energy Information Administration (EIA), as natural gas prices leaped, so did wholesale electricity prices across all regions. During the second half of 2021, average electricity prices averaged $45 per MW hour (MWh) at the Illinois hub, while the SP15 hub in California’s CAISO market jumped to $61/MWh) – a 97 percent and 37 percent increase, respectively.
However, the Electric Reliability Council of Texas (ERCOT) market was among the hardest hit last year due to a major February storm boosting extremely cold temperatures. As a result, natural gas flow was restricted, wind turbines froze, and wholesale electricity prices skyrocketed past $6,000/MWh. Even when dropped to averages, Texas’s electricity price was about $1,485/MWh for February. The cold weather’s effects contributed to natural gas price spikes elsewhere throughout the country, but the Lone Star state took the brunt.
