US Power Market Update - 25 Jan. 2022

Market Commentary

The natural gas storage report for the week ending 1/14 indicated a withdrawal of 206 Bcf. This draw came in slightly above expectations, and also exceeded the benchmarks for last year's coincident week, as well as the 5-year average for the week.

Winter strip power market futures retreated sharply this week, dropping over 20% in each of the Northeast ISOs, as well as in ERCOT. California saw February futures dip 14%. The balance of 2022 is down roughly 10% across the board as well. With 2023- 2025 calendar year strips dropping in every region but California, we have started to see the backwardation in these outer years narrow over the past few weeks.

While daily spot rates remain quite high, the February weather outlooks have provided some light at the end of the tunnel for both near-and long-term power futures. For end-users seeking long-term budget certainty, the outer years will help soften the blow of the higher near-term premiums. For customers with the ability to hedge incrementally, there will likely be more favorable hedging positions available in the coming weeks, provided February delivers the warmth that we are seeing in current forecasts.

Regional LMP Movement

LMPs remained in a heightened state this past week, with the exception of California, which dipped another 11% week-over-week. While NYISO and New England saw more modest gains on their already inflated spot rates, ERCOT and PJM jumped another 15% and 29% respectively as a result of the sustained cold stretch.

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