September’s average price of electricity fell on lower natural gas prices and lower demand
Lower demand, driven by milder weather, and lower natural gas prices pulled September’s average monthly power price down 24%, to $27.21 per megawatt-hour (MWh)*, compared to the September 2015 average price of $35.83/MWh. September’s natural gas price was the 10th lowest since the wholesale electricity markets in their current form were launched in 2003 in New England, and the wholesale power price during September was the 12th lowest during that time period.
Drivers of Wholesale Electricity Prices
In general, the two main drivers of wholesale electricity prices in New England are the cost of fuel used to produce electricity and consumer demand.
Power Plant Fuel: Fuel is typically one of the major input costs in producing electricity. Natural gas is the predominant fuel in New England, used to generate 49% of the power produced in the region last year, and natural gas-fired power plants usually set the price of wholesale electricity in the region. As a result, average wholesale electricity prices are closely linked to natural gas prices.
The average natural gas price during September was $2.52/million British thermal units (MMBtu)** at the Algonquin pipeline delivery point in Massachusetts. The September average natural gas price represents a 10.9% decline from the September 2015 monthly natural gas price of $2.83/MMBtu. The September 2016 natural gas price fell 20.0% from the August 2016 average price of $3.15/MMBtu.
Electricity Demand: Demand is driven primarily by weather as well as economic factors. Energy usage during September 2016 fell to 10,127 GWh, down 5.7% compared to September 2015. The average temperature during September was 65.9˚ Fahrenheit in New England, down from the 67.8˚ Fahrenheit average recorded during the previous September. The average dewpoint, a measure of humidity, came in at 55˚F, compared to 56.9˚F in September 2015. The number of cooling degree days (CDD) and heating degree days (HDD) totaled 51 and 68, respectively, in September, compared to 60 CDD and 44 HDD in September 2015. The normal Sepember level is 28 CDD and 103 HDD in New England.***.
Peak demand for the month was recorded at 23,066 MW on September 9 during the hour from 4 to 5 p.m., when the temperature in New England was 89.8°F and the dewpoint was 65°. The September 2016 peak was down 5.3% from the September 2015 peak of 24,368 MW, set during the hour from 3 to 4 p.m. on September 8, 2015, when the temperature was 90.8°F and the dewpoint was 65°.
Peak demand is driven by weather, which drives the use of heating and air conditioning equipment. The all-time peak demand in New England was 28,130 MW, recorded during an August 2006 heat wave, when the temperature was 94°F and the dewpoint was 74°. Air conditioning use is far more widespread than electric heating in New England, so weather tends to have a relatively greater impact on the summer peak than the winter peak.
Fuel Mix: The mix of resources used in any given time period depends on price and availability, as well as supplemental unit commitments made to ensure system stability. Natural gas-fired and nuclear power plants produced most of the 8,625 gigawatt-hours (GWh) of electric energy generated within New England during September, at about 54% and 31%, respectively. Hydroelectric resources in New England generated 4%. Renewable resources generated about 9% of the energy produced within New England, including 6.9% from wood, refuse, and landfill gas; 1.8% from wind, and 0.7% from solar resources. Coal units generated 1.5%, and oil-fired resources produced 0.48% of the energy generated within New England. The region also received net imports of about 1,661 GWh of electricity from neighboring regions.
|September 2016 and Percent Change from September 2015 and August 2016 ||September 2016 ||Change from September 2015 ||Change from August 2016
|Average Natural Gas Price
|Total Electricity Use
* One megawatt (MW) of electricity can serve about 1,000 average homes in New England. A megawatt-hour (MWh) of electricity can serve about 1,000 homes for one hour. One gigawatt-hour (GWh) can serve about one million homes for one hour.
** A British thermal unit (Btu) is used to describe the heat value of fuels, providing a uniform standard for comparing different fuels. One million British thermal units are shown as MMBtu.
*** A degree day is a measure of heating or cooling. A zero degree day occurs when no heating or cooling is required; as temperatures drop, more heating days are recorded; when temperatures rise, more cooling days are recorded. The base point for measuring degree days is 65 degrees. Each degree of a day’s mean temperature that is above 65 degrees is counted as one cooling degree day, while each degree of a day's mean temperature that is below 65 degrees is counted as one heating degree day. A day’s mean temperature of 90 degrees equals 25 cooling degree days, while a day's mean temperature of 45 degrees equals 20 heating degree days.
**** Weather-normalized demand indicates how much electricity would have been consumed if the weather had been the same as the average weather over the last 20 years