Wholesale electricity prices fell 29% last year

Monitor staff
Published: 2/27/2017 10:26:00 PM

New England paid less for electricity on the wholesale level last year than any time in the last 13 years thanks to a warm winter, a reduction in power use and a glut of very cheap natural gas.

New England’s wholesale electricity prices in 2016 were the lowest since competitive markets started setting wholesale prices in 2003, according to ISO New England Inc., the operator of the region’s power grid and electricity marketplace.

The wholesale price of $28.94 per megawatt-hour was 29 percent less than 2015, and a whopping 40 percent below the price in 2004, the first full year of competitive wholesale electricity markets.

Half the electricity in New England is produced by plants that burn natural gas. Because fuel is generally their biggest cost, “the price of natural gas is typically the major driver of wholesale electricity prices in New England,” said ISO-NE in a press release.

Natural gas prices in 2016 were the lowest since 1999, thanks to increased production from shale fields in New York and Pennsylvania.

The extremely warm 2016 winter was also a factor because it reduced demand for natural gas for heating, leaving more room in pipelines to carry gas to power plants. In cold winters, plants must switch to more expensive fuels when they can’t get enough gas.

Finally, reduced demand cut prices. ISO-NE said demand for electricity fell in New England in 2016 by 2.1 percent, to 124,323 gigawatt-hours.

ISO-NE cautioned that the conditions of 2016 shouldn’t be counted on to keep prices low, noting that the extremely cold months of January and February 2014 saw the highest wholesale electricity prices ever in New England.

Changes in wholesale prices don’t always translate directly into changes in the retail price paid by homeowners and businesses because of various factors, including the fact that retail prices are set by regulators rather than changing quickly due to market factors. That delay can protect customers when wholesale prices spike, as they did in 2014, or hurt them when wholesale prices slip.

(David Brooks can be reached at 369-3313 or dbrooks@cmonitor.com or on Twitter @GraniteGeek.)




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