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FERC’s Annual Review: Wholesale Energy Markets, Renewable Energy Keep Growing

March 20, 2023
Wholesale energy prices are rising in most U.S. pricing hubs for the second year in a row, even climbing beyond their pre-pandemic levels.

Over the past year, wholesale energy markets continued to move away from coal and toward renewable energy sources, according to the Federal Energy Regulatory Commission’s 2022 State of the Markets Report.

The report, which is put together by the Office of Energy Policy and Innovation’s Division of Energy Market Assessments, found that while the shares of generation from wind and solar made gains, natural gas held the largest share of power generation at 38.9% in 2022.

Along the same time period, wholesale electricity market arrangements grew in 2022. The Southeast Energy Exchange Market (SEEM), a platform to facilitate bilateral trades, was launched in the southeast and more participants joined the Western Energy Imbalance Market (WEIM) and the Western Energy Imbalance Service (WEIS).

Wholesale energy prices are rising in most U.S. pricing hubs for the second year in a row, even climbing beyond their pre-pandemic levels. The New York Independent System Operator and the PJM Interconnection saw the steepest climbs. The rising prices were driven by higher natural gas prices and more economic activity that caused more demand for electricity, according to FERC.

The national average benchmark natural gas spot price at Henry Hub rose to $6.38/Million British thermal unit (MMBtu) – its highest level since 2008. Disruptions in the worldwide market for liquified natural gas were triggered by, among other things, the continuing war in Ukraine and economic embargoes against Russia, a major natural gas supplier.

“Warmer-than-normal temperatures across much of the country during the summer of 2022 increased natural gas demand. Low natural gas storage inventories exiting winter 2021-22 were slowly refilled over the summer, due to high natural gas prices and price volatility. Uncertainty about natural gas demand for LNG exports significantly contributed to price volatility in 2022,” according to the report.

By the end of the year, more than 1,850 GW of capacity (including energy storage) were pending in transmission providers’ interconnection queues, with wind, solar, and energy storage making up 94% of this capacity.

The FERC report credited the California Independent System Operator for avoiding service interruptions during a record-breaking heat wave that stressed the power grid. California ISO used flexible resources, including energy storage, to keep the lights on.

Another extreme weather event struck during the days before Christmas, setting off power outages in the Mid-South, hitting utilities in Tennessee and North Carolina hardest. Extreme cold shutting down the flow of natural gas contributing to the outages, much as it did during the 2021 Texas freeze.

Just days later, FERC and the North American Electric Reliability Corporation launched a joint inquiry into the bulk power system’s performance during extreme winter weather. This study intends to identify problems utilities and the power grid are now seeing, and recommend remedies for them where appropriate.

FERC launched two rulemaking processes last year that were related to shoring up the bulk power delivery system for times of extreme weather.

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