Fuel Costs, Natural Events Produce Higher 2021 Electricity Prices

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by | Jan 7, 2022

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(Credit: Pixabay)

Wholesale prices for electricity rose in 2021 over the previous year because of increased costs of power generation fuels, such as natural gas, and volatility created by natural events like the February winter storm in Texas.

The cost of natural gas delivered to electricity generators grew from $3.19 per British thermal units (MMBtu) in January of 2021 to an estimated $5.04 MMBtu by the fourth quarter, according to the United States Energy Information Administration. In 2020 the cost of natural gas delivered to electric generators averaged $2.40 MMBtu.

In Texas, the wholesale cost of electricity averaged $1,485 a megawatt hour in February. That exceeded $6,000 per MWh nearly 70% of the time between Feb. 14 and Feb. 19. This came as the freezing temperatures froze wind turbines and restricted the flow of natural gas.

Cold weather throughout the US that month caused prices to spike, with prices averaging $42 per MWh in the PJM Interconnection market, which serves the mid-Atlantic states, and $73 a MWh in ISO-New England.

The growing fuel costs, according to the EIA, contributed to higher electricity prices throughout the US. Average costs during the second half of 2021 were $45 a MWh at the Illinois hub in the Midcontinent ISO market, a 97% increase from the second half of 2020. Prices averaged $61 a MWh at the SP15 hub in California CAISO market, which was a 37% increase over the previous year.

Energy prices as a whole rose in 2021, according to the EIA. Natural gas prices increased at a slower rate than some other fuel commodities, but still rose at a 38% clip.

That lead to electricity issues around the world, as Europe and China dealt with the problem.

Additionally, natural and weather events like the winter shutdowns in February are becoming more of a priority for businesses and even US regulation. Earlier in 2021, a survey of businesses in the US and United Kingdom showed that despite a focus on reducing carbon emissions, only 37% had made any efforts to address climate events. Some of the climate goals outlined by the Biden Administration specifically addressed being prepared for weather events and improve grid resiliency.

Efforts on a more local scale to help with power and electricity resiliency and cost include efforts like virtual power plants and battery energy storage projects, such as one in Maryland that is set to launch early in 2022.

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