- A severe heat wave in the US Southwest and Southern California has increased electricity prices by 62%.
- CAISO forecasts peak electricity demand to reach 41.46 gigawatts, a 28% increase from the previous week.
- Rising natural gas consumption and prices contribute to higher electricity production costs, highlighting the energy market’s vulnerability to extreme weather.
An intense heat wave in the western United States is driving a sharp rise in wholesale electricity prices, especially in Southern California and the Southwest. The National Weather Service (NWS) issued excessive heat warnings, forecasting record-high temperatures.
A high-pressure ridge over the Four Corners region triggers temperatures as high as 43 degrees Celsius. Overnight temperatures remain elevated, offering little relief. CustomWeather data predicts the average daily temperature across the California Independent System Operator (CAISO) region will hit 23.3 degrees Celsius on October 2, well above the historical October average of 15.5 degrees.
CAISO projects peak electricity demand will surge to 41.46 gigawatts on October 2, a 28% increase from the previous week. This forecast significantly exceeds the 29.68 gigawatts recorded as the average peak in October 2023. CAISO spokesperson Anne Gonzales confirmed no flex alerts are planned despite this surge. CAISO last issued a flex alert in 2022.
“The CAISO continues to monitor rising temperatures closely,” Gonzales said. “We expect sufficient energy to meet demand without any supply shortfalls.”
The rising heat also pushes wholesale electricity prices higher across the region. According to S&P Global Commodity Insights data, Palo Verde on-peak day-ahead prices for October 2 delivery jumped 40%, reaching $68 per megawatt-hour (MWh). Mead on-peak day-ahead prices increased 47.5% to $72.75 per MWh. SP15 on-peak prices saw the most significant surge, climbing 62% to $54.25 per MWh.
Natural gas consumption in California has also risen sharply, hitting 5.6 billion cubic feet per day on October 1, up from 4.8 billion cubic feet the previous week. This marks the highest consumption level since early September. Increased gas demand is fueling higher prices, with the PG&E city-gate price spiking to $4.65 per million British thermal units (MMBtu), its highest point since January. Although prices slightly dropped to $4.10 for October 2 flows, they remain well above the $3 average from the prior week.
SoCalGas city-gate prices also jumped, climbing to $3.72 per MMBtu for October 2, up from $3.42 the previous day. The last week’s average stood at $2.55 per MMBtu.
The increased demand for natural gas reflects the growing need for power generation as temperatures soar. Grid operators like CAISO continue to track the balance between supply and demand to avoid shortages. So far, the lack of flex alerts suggests confidence in the system’s ability to handle the surge in demand.
Rising natural gas prices increase electricity production costs, particularly for gas-fired plants. This situation highlights the vulnerability of energy markets to extreme weather and stresses the need for better resource management to ensure price stability.
Operators and regulators aim to strengthen grid resilience and manage demand more effectively. Expanding renewable energy and improving energy efficiency remain essential strategies to mitigate the impacts of future heat waves on the energy market.