Monthly wholesale electricity prices and demand in New England, August 2018
Wholesale power and natural gas prices rose in August
Warmer weather brought increased consumer demand for electricity, which, coupled with higher natural gas prices, pushed up average wholesale power prices for the month of August 2018 in both the Day-Ahead and Real-Time Energy Markets when compared to the previous year. The day-ahead energy price was up 57.2% to $39.16 per megawatt-hour (MWh)* and the real-time energy price rose 64.8% to $39.18/MWh.
High temperatures at the end of the month led to the region’s highest peak demand in more than five years on August 29, 2018, at 25,944 MW. The last peak to measure above this month’s peak occurred on July 19, 2013, at 27,379 MW.
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 August was $3.14 per million British thermal units (MMBtu)**. The price rose 34.1% from the August 2017 average Massachusetts natural gas index price of $2.34/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 August average natural gas price recorded a 12% increase from the July 2018 price of $2.80/MMBtu.
Electricity demand: Demand is driven primarily by weather, as well as economic factors. Energy usage during August 2018 rose by 13% to 12,555 GWh from the 11,109 GWh used in August 2017. The average temperature during August was 75˚ Fahrenheit (F) in New England, compared to 70˚F recorded as the average during the previous August. The average dewpoint, a measure of humidity, was 66˚F in August 2018, up from 59˚F in August 2017. There were 194 cooling degree days (CDD)*** during August 2018, significantly higher than the 79 CDD seen in August 2017. The normal number of CDD in August is 102 in New England.
Consumer demand for electricity for the month peaked on August 29 during the hour from 4 to 5 p.m., when the temperature in New England was 93°F and the dewpoint was 70°. Demand reached 25,944 MW, with 45 MW met through reductions by active demand resources****. This marked the highest consumer demand on the New England system since 2013. The August 2018 peak was 13.9% higher than the August 2017 peak of 22,769 MW, set during the hour from 5 to 6 p.m. on August 22, 2017, when the temperature was 87°F and the dewpoint was 70°.
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°. 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°. 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 86% of the 11,035 GWh of electric energy generated within New England during August, at about 60.2% and 25.8%, respectively. Renewable resources generated about 7.6% of the energy produced within New England, including 4.9% from wood, refuse, and landfill gas; 1.5% from wind; and 1.2% from solar resources. Coal- and oil-fired units produced under 1%, combined, of the energy generated within New England. Hydroelectric resources in New England generated 5.7%. The region also received net imports of about 1,730 GWh of electricity from neighboring regions, and active demand response accounted for 4.4 GWh of reduced system demand.
| August 2018 and Percent Change from August 2017 and July 2018 |
August 2018 | Change from August 2017 | Change from July2018 |
|---|---|---|---|
| Average Real-Time Electricity Price ($/megawatt-hour*) |
$39.18 | +64.8% | +16.3% |
| Average Natural Gas Price ($/MMBtu**) |
$3.14 | +34.1% | +12% |
| Peak Demand | 25,944 MW | +13.9% | +6.2% |
| Total Electricity Use | 12,555 GWh | +13% | +2.3% |
| Weather-Normalized Use***** | 11,344 GWh | +0.3% | -2.5% |
*One megawatt (MW) of electricity can serve about 750 to 1,000 average homes in New England. A megawatt-hour (MWh) of electricity can serve about 750 to 1,000 homes for one hour. One gigawatt-hour (GWh) can serve about 750,000 to 1 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. ****Since June 1, 2018, active demand-response resources have been able to participate on an hourly basis in the wholesale electricity markets. These resources reduce demand in real time.*****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.
Historical weather data provided by DTN, LLC.; Underlying natural gas data furnished by ICE
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