Good Buying Opportunities in 2020 and 2021

Over the last four weeks, wholesale power futures in New York have risen but remain in an attractive position to make near-term purchases. Figure 1 shows wholesale calendar prices for 2020 through 2024 since the beginning of the year. Futures hit their highs during the first week of May. During that week, calendar year 2024 (orange line) was the most expensive at $50.56/MWh and 2020 (dark blue line) was the least expensive at $37.21/MWh.

Figure 1: Calendar Year Wholesale Prices for NYISO Zone J, by 5

Wholesale futures over all years fell consistently during the months of May and June and hit a low during the first week of July.  Futures rebounded and rose, on average, 9% over all calendar years after the July 4^th holiday. Market prices have been flat since then.  While the market rally in July may seem significant, in a broader view, near-term wholesale prices remain favorable.

Figure 2 shows the same calendar strips in Figure 1 going back to July 2016.  Futures prices viewed in this wider context are near their lows, especially for calendar years 2020 and 2021. The steep increase in wholesale futures in the spring of 2018 coincided with the New York Independent System Operator’s (the NYISO is the entity that manages the electricity grid in the State of New York) release of its carbon pricing plan, which is to impose a “carbon tax” on electricity that is produced from fossil fuel generators beginning in 2022. Doubts about the NYISO’s ability to implement this carbon tax caused the market to fall from its high set back in May. And while futures have rebounded since July, wholesale futures for 2020 and 2021 are at levels that are below where they were when the carbon tax was announced in May 2018.   

Figure 2: Calendar Year Wholesale Prices for NYISO Zone J, by 5

While both Figure 1 and Figure 2 are for wholesale electricity traded in New York City, similar patterns and trends are observed across all parts of New York State. Clients with open electricity positions in 2020 and 2021 should consider making additional purchases and closing out those positions.