Wholesale power prices in California spiked in Sep 2022. Why did that happen– and how high did they go?

Lucas Davis, Jeffrey A. Jacobs Distinguished Professor in Business and Technology at the Haas School of Business at the University of California, Berkeley, recently revealed insights about the effect of record-breaking summer heat waves on power prices.

“The September heat wave was historic, both in intensity and in length,” said Jacobs. “Air conditioning pushed electricity demand to a new all-time record on September 6th (over 52,000MW!). Thus far during September, the average day-ahead electricity price during peak hours has been over $450 per MWh. Electricity prices have been well above normal levels for the entire month, but September 6, 7, and 8 experienced the highest prices.” 

The demand for relief from the extreme heat drove prices to nearly unprecedented highs. “Both Tuesday (9/6) and Wednesday (9/7) wholesale prices reached $1200 per MWh, some of the highest prices in recent memory,” Davis reports. 

“Were prices high? Yes, absolutely,” commented Davis. “But this is exactly what is supposed to happen during periods of market scarcity. High prices create a strong incentive for generators to increase supply, and for consumers to decrease demand.” 

For more details, see Prof. Davis’s report.

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