March 26, 2018

Monthly wholesale electricity prices and demand in New England, February 2018

February natural gas and wholesale power prices subsided from January’s highs

Milder weather during February tempered the demand for both natural gas and power and allowed the average monthly price for each to shrink significantly from the highs recorded during January. The average monthly wholesale power price shrank more than 63% in both the day-ahead and real-time energy markets, to $39.58 per megawatt-hour (MWh)* and $36.91/MWh, respectively. While those prices marked significant declines from January’s prices, they were still up, by about 32%, from the average monthly prices recorded in February 2017.

February also marked a return to a more typical resource mix. During the extreme cold weather in early January, the spike in natural gas demand and resulting rise in prices caused coal- and oil-fired generators to be less costly to run than natural-gas-fired generators. As a result, coal- and oil-fired generators were dispatched more often in January, and generated about 15% of the energy produced by New England power plants. By contrast, in February, coal- and oil-fired power plants produced under 2% of the region’s generation. That’s closer to the usual fuel mix—in 2017, they generated just 2.3% of the energy produced in New England.

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 48% of the power produced in 2017 by New England’s power plants, 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 $4.42/MMBtu**, up 18.8% from the February 2017 average Massachusetts natural gas index price of $3.72/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 recorded a steep 71% decline from the January 2018 price of $15.37/MMBtu, which was the fifth-highest monthly natural gas price since March 2003.

Electricity Demand: Demand is driven primarily by weather as well as economic factors. Energy usage during February 2018 dropped 1% to 9,345 gigawatt-hours (GWh) from the 9,440 GWh used in February 2017. The average temperature during February was 35˚ Fahrenheit (F) in New England, compared to 34˚ recorded as the average during the previous February. The average dewpoint, a measure of humidity, was 26˚F, compared to 22˚F in February 2017. The number of heating degree days (HDD)*** came in at 827 in February, compared to 869 HDD in February 2017. The normal February level is 1,019 HDD in New England. There were no cooling degree days in February.

Peak demand for the month was recorded at 18,256 MW on February 7 during the hour from 5 to 6 p.m., when the temperature in New England was 29°F and the dewpoint was 27°. The February 2018 peak was 0.5% higher than the February 2017 peak of 18,165 MW, set during the hour from 5 to 6 p.m. on February 9, when the temperature was 18°F and the dewpoint was 9°.

Peak demand is driven by weather, which drives the use of heating and air conditioning equipment. The all-time high winter peak was 22,818 MW, recorded during a cold snap in January 2004 when the temperature was -1°F and the dewpoint was -20°. 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 resource commitments needed to ensure system stability. Natural gas-fired and nuclear generation produced 76% of the 7,786 gigawatt-hours (GWh) of electric energy generated within New England during February, at about 42% and 34%, respectively. Renewable resources generated about 12% of the energy produced within New England, including 7% from wood, refuse, and landfill gas; 4% from wind; and 0.7% from solar resources. Coal units generated 1.5%, and oil-fired resources produced 0.03% of the energy generated within New England. Hydroelectric resources in New England generated 10%. The region also received net imports of about 1,687 GWh of electricity from neighboring regions.

February 2018 and Percent Change from February2017 and January 2018	February 2018	Change from February 2017	Change from January 2018
Average Real-Time Electricity Price ($/megawatt-hour*)	$36.91	+31.6%	-65.7%
Average Natural Gas Price ($/MMBtu**)	$4.42	+18.8%	-71.2%
Peak Demand	18,256 MW	+0.5%	-11.4%
Total Electricity Use	9,345 GWh	-1.0%	-18.7%
Weather-Normalized Use****	9,732 GWh	+0.3%	-14.6%