News

A wave of coal-plant retirements could send power prices in the Lone Star state soaring as soon as next summer.

The forecast for the reserve margin -- or excess supply versus peak summer demand -- has been cut to 11.6 percent for 2018 from 18.9 percent in May, said Beth Garza, vice president of Potomac Economics, which monitors the state grid. Earlier this month, Vistra Energy Corp. said it’s shutting three big power plants that run on coal.

As a result, volatility will increase for power prices next summer, Bill Berg, vice president of wholesale market development at Exelon Corp., said at the Platts Financing U.S. Power conference in New York on Wednesday. Texas has become the “most interesting” power market in a matter of weeks, he said.

Although forward curves should never be viewed as a price forecast, they reflect current market expectations. Those expectations seem clear and are supported by all available data: natural gas supply should remain fairly tight through 2017 and will probably increase some time in 2018 and that will result in lower gas prices. Understand the uncertainties and plan accordingly.

Prices have more than doubled since March 2016 but gas is still under-valued. Supply is tight because demand and exports have grown and shale gas production has declined.

In April of last year, I wrote that natural gas prices should double and they did. Henry Hub spot prices increased 2 1/2 times from $1.49 to $3.70 per mmBtu and NYMEX futures prices doubled from $1.64 to $3.30 per