Coal-fired generation has been holding a profit advantage over at least some natural gas units in the midcontinent for more than a week.
Peak day-ahead spark spreads for both coal and natural gas in the central US and Midwest jumped last week as colder-than-normal weather arrived and power markets tightened. But different directions in coal and natural gas prices led to greater gains in coal profit margins.
The peak day-ahead spark spread for 10,000 Btu/kWh coal units at the Indiana power hub — a reference point for central portions of the Midcontinent Independent System Operator (MISO) — jumped by $27.90/MWh on 1 December to $36.52/MWh, while the margin for 8,000 Btu/kWh natural gas units rose to $34.83/MWh that day from $8.23/MWh the previous trading day.
Overall, the spread for 10,000 Btu/kWh coal units at the Indiana power hub surpassed the spread for 8,000 Btu/kWh natural gas units the past eight trading days. While coal's advantage over natural gas has narrowed this week, the eight-day stretch is the longest for coal over natural gas at the Indiana power hub since October 2021.
Elsewhere, coal generation in the PJM Interconnection West hub was more profitable than 8,000 Btu/kWh natural gas units for the past seven days, which was the longest period since 3-23 January.
Both coal and natural gas profit margins were supported by jumps in power prices as the colder weather pattern moved into the central US. The peak day-ahead power price at the Indiana power hub climbed by $28.04/MWh on 1 December to $70.43/MWh — the highest since 15 August — and averaged $59.55/MWh so far this month. The price at PJM West reached a more than four-month high of $132.85/MWh on 8 December and averaged $94.33/MWh 1-9 December.
At the same time, natural gas prices surged last week while coal prices ranged from unchanged to only slightly higher, giving room for coal to take a profit advantage over at least some natural gas generation.
The average for the day-ahead price for natural gas at the Chicago Citygates — a benchmark for gas in the Midwest — was $4.525/mmBtu over 1-9 December. By comparison, Powder River basin 8,800 Btu/lb coal was assessed as being delivered to St Louis, Missouri, at $2.363/mmBtu on 3 December and delivered to southwest Ohio at $2.685/mmBtu. Illinois basin and CSX rail-originated coal delivered to the Midwest also had lower prices than the Chicago Citygates average.
Coal-fired generation in MISO — typically the largest grid for US coal power — was the dominant fuel source for the grid on 6-7 December and has held above year-earlier levels all of this month so far. Gas power in MISO was the primary generating source every other day so far this month but has lagged year-earlier levels.
Temperatures across much of MISO's and PJM's footprints are expected to stay below normal through Sunday, according to weather forecasters.
But electricity heating demand is expected to recede next week. Temperatures in the midcontinent and eastern US are projected to be closer to seasonal norms from 15-19 December, private forecaster Commodity Weather Group said today. Warmer-than-normal conditions were then forecast to move into the eastern half of the country from 20-24 December.
