« Consumer Liaison Group discusses energy projects in Rhode Island at September quarterly meeting | Main | Spring 2016 markets report reviews wholesale market outcomes during March, April, and May 2016 »

Monthly wholesale electricity prices and demand in New England, August 2016

August’s average price of electricity rose on higher natural gas prices and higher demand

August’s average monthly power price of $40.19 per megawatt-hour (MWh)* was up 13.7% from the August 2015 average price of $35.35/MWh and 37% higher than the July 2016 average price of $29.33/MWh. The month included some very hot and humid weather that drove up air conditioning use, which drove up demand for power by 3% over the month as a whole. The highest level for demand so far this year occurred on August 12, during a heat wave, when demand peaked at 25,521 MW. The day before, on August 11, shortage conditions developed – meaning the region was short of the required level of reserves – on the regional power system when several generators tripped offline, causing real-time prices to spike and requiring implementation of special operating procedures, including dispatch of demand-response resources in all of New England except Maine. The ISO New England control room maintained reliable power system operations throughout the day.

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 August was $3.15/MMBtu  at the Algonquin pipeline delivery point in Massachusetts. The August average natural gas price represents a 33.7% increase from the August 2015 monthly natural gas price of $2.36/MMBtu, which was the eighth-lowest since 2003. The August 2016 natural gas price rose 2.9% from the July 2016 average price of $3.06/MMBtu.

Electricity Demand: Demand is driven primarily by weather as well as economic factors. Energy usage during August 2016 rose by 3.0% compared to August 2015, to 12,596 GWh. The average temperature during August was 74.5˚ Fahrenheit in New England, up from the 72.6˚ Fahrenheit average recorded during the previous August. The average dewpoint, a measure of humidity, came in at 61.8˚F, compared to 61.3˚F in August 2015. The number of cooling degree days (CDD) and heating degree days (HDD) totaled 143 and 0, respectively, in August, compared to 115 CDD and 0 HDD in August 2015. The normal August level of is 101 CDD and 8 HDD in New England.***.

Peak demand for the month was recorded at 25,521 MW on August 12 during the hour from 2 to 3 p.m., when the temperature in New England was 93.1°F and the dewpoint was 71.9°. The August 2016 peak was up 5.4% from the August 2015 peak of 24,216 MW, set during the hour from 2 to 3 p.m. on August 18, 2015, when the temperature was 84.2°F and the dewpoint was 68.0°.

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 10,681 GWh of electric energy generated within New England during August, at about 59% and 26%, respectively. Hydroelectric resources in New England generated 4%. Renewable resources generated about 8% of the energy produced within New England, including 5.7% from wood, refuse, and landfill gas; 1.5% from wind, and 0.7% from solar resources. Coal units generated 2.1%, and oil-fired resources produced 0.58% of the energy generated within New England. The region also received net imports of about 2,124 GWh of electricity from neighboring regions.

August 2016 and Percent Change from August 2015 and July 2016
August 2016
Change from August 2015
Change from July 2016
Average Real-Time
Electricity Price
$40.19 +13.7% +37.0%
Average Natural Gas Price
$3.15 +33.7% +2.9%
Peak Demand
25,521 MW
+5.4% +4.9%
Total Electricity Use
12,596 GWh
+3.0% +2.1%
Weather-Normalized Use****
12,058 GWh
-0.2% -1.6%
  * 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