U.S. Power Price Changes

We take another look at the power and natural gas price relationship

U.S. Power Price Changes
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As we've done in the past, we dig into the relationship between natural gas prices and power prices in the U.S.

Oil and gasoline prices have received much of the political and consumer attention during 2022 in the U.S., but power prices continue to march higher, largely driven by higher natural gas prices

The correlation of percentage of natural gas generation and changes in power prices continues to remain strong

Industrial power prices remain the focus to isolate fuel costs as much as possible, industrial customers can take higher voltage delivery and require less transmission and distribution as part of the all-in cost structure

Power Price Inflation

Industrial power prices in the U.S. were 9.43 cts per kWh in the latest data (July 2022), up 25% versus a year ago.  Trailing 12-month average industrial power prices are 7.86 cts per kWh, 13% higher.

Both are the highest on record going back to 2001.

Two years ago 27 states had industrial power prices greater than 7 cts per kWh versus 44 today.

When looking at all 50-states, there continues to be a positive observable correlation between the changes in power prices and percentage of state power stacks tied to natural gas on a rolling 2-year basis.

We have shown this work previously and have highlighted that the interpolation is negatively sloped when natural gas prices fall and positively sloped when natural gas prices rise.

To get more granular, the states with the top-10 highest and lowest exposure to natural gas generation were analyzed.  The states with the highest exposure to natural gas have seen their power prices increase by 36% over the last two years whereas the states with the lowest exposure only saw a 10% increase.  

High gas generation states now have industrial power prices that are 37% higher than states with low natural gas exposure.  

Another way to look at this is renewable exposure.  The high natural gas exposure states had 10% of their trailing 12-month generation provided by renewable sources whereas the low natural g exposure states generated 45% of their power from renewable sources.

None of this should be surprising.  All power projects are seeing cost inflation, but capital cost inflation is spread out over years in power price rates, while fuel cost increases make their way into power prices over the course of months.  

Natural gas prices have come down in recent weeks, but we continue to expect high renewable exposed states to see less volatility and lower relative prices if gas prices remain relatively high.