Wholesale electricity prices soared during September’s heat wave in California.
Hot hot hot! What a good way to start September, with record high temperatures across California, and what a test for the state’s electricity market. More California households have air conditioning than ever before, and this has pushed electricity demand to an all-time high.
For today’s post, I want to look at what happened to wholesale electricity prices. Like many of you, I kept checking CAISO Price Card throughout the heatwave, but now that temperatures – and prices – have come down, I wanted to take a closer look at what happened.
There will be time later to analyze the why, but the intention here is to start unpacking the what. How high have prices reached? How did prices vary from day to day? How did the prices vary by hour?
September to remember
Now, in retrospect, the first 8 months of 2022 seem rather bland. The figure below represents average daily prices during peak hours. Each observation corresponds to a day, and I focus on overnight market prices, as this data was more readily available.
For the first 8 months of the year, prices in California during peak hours averaged below $100 per MWh.
Then it got hot. The September heat wave was historic, both in intensity and duration. Air conditioning has pushed the demand for electricity to a new all-time record September 6 (more than 52,000 MW!). So far in September, the average overnight electricity price during peak hours has been over $450 per MWh. Electricity prices were well above normal levels throughout the month, but September 6, 7 and 8 saw the highest prices.
evening peak
The figure above focuses on the period from 4 p.m. to 8 p.m. Why these hours? Because those early evening hours are now unmistakably the peak of late summer in California. The figure below plots the average prices per hour of the day. During the first nine days of September, daily prices in advance peaked between 4 p.m. and 8 p.m.
It’s logic. On those hot days, the air conditioning continues to be very used in the afternoon and evening, even as solar production fades. With good reason, CAISO tends to target 4 p.m. as the starting point for Flex alerts.
Soaring prices across the state
During the heat wave, day ahead prices were similar in different parts of the California market. The figures above show prices for Northern California (NP15), but the patterns are very similar for Central California (ZP26) and Southern California (SP15).
Of course, it is not always true that the prices are the same in these different price zones. When transmission constraints within California link up, it is common to see large discrepancies. But – for this heat wave – the challenge was really the overall balance of supply and demand statewide, as well as the ability to import power from outside the state. State.
Amber Alert
On Tuesday, September 6 at 5:48 p.m., the California Office of Emergency Services sent a emergency text to 27 million Californians urging them to reduce their electricity use. The text seems to have workedwith a demand for electricity decrease of 1,200 MW between 5:50 p.m. and 5:55 p.m..
The text came as a complete surprise, so the impact would not be evident on the day’s prices ahead. But what is clear from today’s prices ahead is that Tuesday night was a real challenge from an electricity market perspective. Wholesale prices on Tuesday (9/6) and Wednesday (9/7) reached $1,200 per MWh, some of the highest prices in recent memory.
Quite a test
All in all, it was quite a test for the California electricity market. Faced with extreme temperatures and record high electricity demand, the market continued to operate and the lights remained on without the need for rolling blackouts.
Were the prices high? Yes absolutely. But that is exactly what is supposed to happen during periods of market scarcity. High prices provide a strong incentive for producers to increase supply and consumers to reduce demand.
I only wish the application could have done even more. The impressive rally in response to the orange alert highlights the untapped potential on this side of the market. I don’t think anyone thinks the state should make a habit of sending this type of emergency texting all the time, but it was striking to see what’s possible with so many people acting together.
Between CAISO flexible alerts, the growing number of critical peak pricing programs, and demand-response companies like Ohm Connectthere are many smart people working to introduce more dynamic incentives for electricity consumers. It’s important that California continues to bring innovative demand-side flexibility to the market, because this won’t be the last heat wave or the last period of extreme prices.
Follow Energy Institute blogs, research and events on Twitter @energyathaas.
Suggested citation: Davis, Lucas. “How high are the electricity prices in California? Energy Institute Blog, UC Berkeley, September 12, 2022, https://energyathaas.wordpress.com/2022/09/12/how-high-did-californias-electricity-prices-get/
