Monthly wholesale electricity prices and demand in New England, February 2017
Higher natural gas prices caused the average electricity price to edge up in February
The February 2017 average price of natural gas rose 6.7% year-over-year, pushing up the wholesale power price in New England by 2.4% to $28.05 per megawatt-hour (MWh)* compared to the February 2016 price of $27.39/MWh.
The 2.4% increase in wholesale power prices was smaller than the 6.7% increase in natural gas prices, in part because demand was lower in February 2017. Total energy consumption in New England declined by 7.1% in February, compared to energy usage during the previous February—but leap year was also a factor in year-over-year comparisons. Because 2016 was a leap year, February 2016 had 29 days, accounting for a portion of the higher energy consumption compared to the 28 days of February 2017.
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 February was $3.72 per million British thermal units (MMBtu)**, up 6.7% from the February 2016 average Massachusetts natural gas index price of $3.49/MMBtu. The Mass. index price is a volume-weighted average of trades at four natural gas delivery points in Massachusetts, including two Algonquin points, the Tennessee Gas Pipeline, and the Dracut Interconnect. The February average natural gas price was down 27.2% from the January 2017 monthly average of $5.11/MMBtu.
Electricity demand: Demand is driven primarily by weather as well as economic factors. Energy usage during February 2017 dropped 7.1% to 9,404 gigawatt-hours (GWh) from the 10,126 GWh used in February 2016. The average temperature during February was 34° Fahrenheit (F) in New England compared to the 32°F average recorded during the previous February. The average dewpoint, a measure of humidity, came in at 22°F, compared to 20°F in February 2016. The number of heating degree days (HDD)*** totaled 869 in February, compared to 963 HDD in February 2016. The normal February level is 1,019 HDD in New England.
Peak demand for the month was recorded at 18,130 MW on February 9 during the hour from 6 to 7 p.m., when the temperature in New England was 18°F and the dewpoint was 9°. The February 2017 peak was down 7.3% from the February 2016 peak of 19,561 MW, set during the hour from 5 to 6 p.m. on February 15, 2016, when the temperature was 18°F and the dewpoint was 7°.
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. The all-time high winter peak was 22,818 MW, recording during a cold snap in January 2004 when the temperature was -1°F and the dewpoint was -20°.
Fuel mix: The mix of resources used in any given time period depends on price and availability, as well as supplemental resource commitments needed to ensure system stability. Natural gas-fired and nuclear power plants produced most of the 7,702 GWh of electric energy generated within New England during February, at about 40% and 34%, respectively. Hydroelectric resources in New England generated 9%. Renewable resources generated about 12% of the energy produced within New England, including 7% from wood, refuse, and landfill gas; 4.2% from wind; and 0.6% from solar resources. Coal units generated 5.3%, and oil-fired resources produced 0.5% of the energy generated within New England. The region also received net imports of about 1,821 GWh of electricity from neighboring regions.
|February 2017 and Percent Change from February 2016 and January 2016
||February 2017||Change from February 2016||Change from January 2017
|Average Natural Gas Price
|Peak Demand||18,130 MW||-7.3%||-7.4%|
|Total Electricity Use||9,404 GWh||-7.1%||-12.0%|
|Weather-Normalized Use****||9,702 GWh||-1.9%||-12.7%|
* 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.