With the sap finally running, the snow slowly melting, and the vernal equinox past, it’s time to look back on winter in the New England energy markets.
Despite dire predictions and some of the worst winter weather on record, there wasn’t a crisis. Modest market shifts made a huge difference, driving down prices, assuring the lights stayed on, and calling into question the wisdom of the region making big new bets on gas pipelines and transmission infrastructure.
In this multi-part series, I will run down the market data on what happened this winter, offer a few explanations, and explore the lessons we should take from the experience as the region looks to its energy future.
Last year, after a very expensive winter in New England’s wholesale energy markets, many were predicting the worst this winter. Ever higher prices. Economic ruin and job losses. Maybe even rolling blackouts on the coldest days. As the leaves were changing colors, electric utilities throughout New England locked in winter power purchases at double the rates most were paying last summer. The newspaper articles and radio stories almost wrote themselves and even went national, as it seemed everyone was talking about energy costs and the apparent culprit—a severe deficit of gas pipeline capacity to transport cheap Marcellus shale gas from the mid-Atlantic and Midwest to heat New England’s buildings and to power our gas-heavy power plant fleet on cold days.
In mid-January, CLF was among the first to see that the supposedly inevitable New England winter energy crisis was fizzling. Natural gas and wholesale power prices were down compared to last year’s prices—way down. Gas from better-utilized pipelines and shipments of liquefied natural gas were amply supplying power plants, even on cold days. Despite higher electric bills, lower oil and gasoline prices were helping many consumers pay less overall for their energy needs than last winter.
Little did we know at the time that February would be among the coldest and stormiest in recorded New England history. While we can expect more weather extremes like this in future years thanks to climate change, February tested the system in ways that, if the pre-winter fears were borne out, would have brought us the full parade of horribles: rolling blackouts, even higher gas and power prices than last year, and major harm to the region’s economy.
In the end, as week after week of cold and snow battered the Northeast, prices in the energy markets did go up. But they didn’t match last year’s peak prices. Here is the final version of my chart showing hourly and daily average wholesale electricity prices on the New England electric grid, comparing last year’s and this year’s prices.
(Keep in mind that $10 per megawatt-hour is the same price as 1 cent per kilowatt-hour. Typical homes use between 500 and 750 kilowatt-hours of electricity per month. The prices I’m analyzing relate only to the supply of electricity from power plants; electric bills also include a charge per kilowatt-hour to deliver the power through the transmission and distribution system and other fees and charges.)
In the end, despite the jump in prices in February, the peak weekly wholesale power price in New England was much lower than last winter, and the lowest winter peak in three years. In fact, that peak weekly price—about 15 ¢/kwh in late February—was less than some retail rates that utilities locked in last fall, not just for the winter but for the first six months of 2015. That’s how wrong last year’s predictions about winter prices were.
It’s true that the cold drove up February power and natural gas prices, likely making the month the most expensive of the year. As a result, the region’s oil and coal power plants were temporarily able to compete, running more than in other seasons, when they barely run at all. But however you look at this winter—day-by-day, week-by-week, or month-by-month—wholesale power prices were below last year’s prices.
Overall, from December 1 to March 20, prices were down 45%. That’s despite the fact that this winter was colder overall than last year, with a temperature in the Boston area about 4°F below historical averages and 1.5°F colder than last year.
These lower wholesale prices mean that it is very likely that next winter’s retail electric prices will be lower than this year’s—power futures for next January and February are now trading between 10 and 12 ¢/kwh, with the other winter months of December and March lower than that. We are already seeing dramatic reductions in retail electric prices for this summer; last week National Grid announced that its supply rate for Massachusetts customers will drop from 16 ¢/kwh to less than 9 ¢/kwh on May 1; this week, the New Hampshire utility Liberty Utilities announced summer rates of less than 7 ¢/kwh, down 55% from its winter rates.
In terms of reliability, the region’s electric grid didn’t miss a beat, despite unfortunately timed outages at the Pilgrim nuclear power plant that took that station offline for many days and the fact that four large non-gas power plants that were available last year—Mount Tom, Norwalk Harbor, Vermont Yankee, and Salem Harbor—are now retired. In the brutal cold and higher priced days of February, ISO-NE never once activated its long chain of alerts and precautions, known as Operating Procedure No. 4, that is triggered when system reliability is at immediate risk.
Read Part II of this series: Why This Winter Was Different
Read Part III of this series: Some Lessons from a Calm, Cold Winter
(photo: Sap buckets on maple trees on a dirt road in Pomfret, Vermont, copyright Jerry and Marcy Monkman/EcoPhotography)