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Electricity Prices Soar Past $200 per Megawatt-hour as Heat Wave Hits Eastern United States

Jesse Jenkins's picture

Jesse is a researcher, consultant, and writer with ten years of experience in the energy sector and expertise in electric power systems, electricity regulation, energy and climate change policy...

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Or a (really hot) day in the life of the power grid

An update for July 18th, which ranks as the #9 peak demand day in New England history is below…

With a heat wave settling across the northeastern and midwestern United States, electricity systems across some of the nation’s most densely populated areas strained to meet peak demands today, sending power prices spiking. 

Wholesale electricity prices briefly touched as high as $230 per megawatt-hour in New England at about 2:30pm this afternoon as temperatures hit 95 in Boston and the humidity pushed the “real feel” index towards 100 degrees. The chart below, from the New England Independent System Operator (ISO-New England) illustrates how power system prices evolve and peak as demand reaches its zenith on a hot summer day.

 ISO-New England Five-Minute Wholesale Power PricesISO-New England 5-minute Real-time Wholesale Power Prices for July 17, 2013


Wholesale “nodal” prices across the PJM system, which spans from the mid-Atlantic states westward through Ohio, West Virginia and parts of Indiana, Kentucky and Illinois, also ranged from $150 to $200 per megawatt-hour as of 3:35pm (click the image below to enlarge). 


Locational marginal electricity prices in PJM July 17 2013

PJM Locational Marginal Prices Contour Map for 3:15pm Eastern Time, July 17th 2013

For comparison, peak wholesale prices today in ISO-NE and PJM were about three to five times higher than typical wholesale prices, which frequently range from $35 to $60 per megawatt-hour. 

Sweltering temperatures from Washington D.C. to Boston were responsible for the rise in power demand, as air conditioners cranked up to keep residents of the nation’s most densely populated corridor of the country cool. Power demand peaked in New England at 26,500 megawatts today, equivalent to the output of more than 26 large nuclear reactors. 

In response to higher-than-normal power demands, system operators in New England fired up the region’s peaking power plants, which in many cases still run on costly fuel oil in this region. Oil-fueled plants provided 7 percent of the region’s power supply as of 3:00pm this afternoon. You can see the mix of fuels in the New England system in the graphic below.

ISO-New England Fuel Mix for July 17th 2013ISO-New England Electricity Generation Fuel Mix for 3:00pm July 17th 2013

For most consumers of electricity, however, flat tariff rates mean most of us don’t see a price signal when the prices of wholesale power spikes. Most of us are charged the same rate per kilowatt-hour of consumption regardless of how expensive (or cheap) power production is at any given time. Except for areas where demand response programs are underway or customers are on real-time pricing tariffs meant to reflect market conditions, that means our AC units keep humming away and other energy uses continue as if it were business as usual, despite the strain put on the power grid and the increasingly costly fuels and power plants operated to meet summer-time peak demands.

Note that ISO-New England analysts project that power demand across the system will peak even higher tomorrow, at 27,900 megawatts, as the current heat wave streches on through at least Friday.

You can check in on the power system and wholesale power prices in New England in real time with the ISO-New England Dashboard here, and view a real-time contour map of locational marginal prices in the PJM region here. Keep an eye on them tomorrow and friday afternoon, and you’ll get another tour through a (really hot!) day in the life of the grid.


Update: July 19th:

ISO-New England System Demand, Thursday July 178hPeak system load on Thursday July 18th topped out at 26,881 megawatts at 2:45 pm. While that fell about 1,000 megawatts short of the day’s forecasted peak, that would still put Thursday in the #8 slot for Top 10 Demand Days in ISO-New England, and would bump Wednesday July 17th’s peak of 26,661 megawatts off the Top 10 list and into the #11 slot.

ISO-New England is projecting another record day today, however. The system may peak as high as 27,850 megawatts Friday if the forecast holds. That would be sufficient to place July 19th in the #2 slot for record demand days in New England. 

As the system heated up Thursday, five-minute real-time electricity prices also rose as high as $672.41 per megawatt-hour. Prices held steady above $200 per megawatt-hour for most of the daytime hours and spiked higher numerous times over the course of the record demand day. Average hourly prices reached as high as $466.07 as temperatures peaked around 3:00 pm. See graphs below to see how wholesale prices behave on a record demand day…

ISO-New England 5-minute Real-time Wholesale Power Prices for July 17, 2013
ISO-New England 5-minute Real-time Wholesale Power Prices for July 18, 2013

ISO-New England Hourly Wholesale Power Prices for July 18, 2013
ISO-New England Hourly Wholesale Power Prices for July 18, 2013

Update: July 24th:

Rounding out a record-setting week: total ISO-New England system demand reached 27,377 megawatts on Friday July 19th. That ranked in as the fourth highest demand day in New England history. It also bumped Thursday July 18th down to the #9 slot in the Top 10 and moved Wednesday July 17th into 12th place.

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Robert Hargraves's picture
Robert Hargraves on Jul 17, 2013

But $200/MWh is still less than we are paying for wind or solar power with feed-in tariffs.

Christos Makridis's picture
Christos Makridis on Jul 18, 2013

Thank you for the contribution Jesse and would be curious to hear your remarks about the following too. The real issue is on the structure of wholesale and retail electricity markets — no dynamic pricing (i.e. price doesn’t adjust continuously throughout the day) and retail markets don’t have marginal cost pricing (in contrast, the tariff pricing as you mentioned). Adding additional electricity to the grid doesn’t solve the problem — this escalates costs because it creates excess capacity when demand is low 99% the rest of the time.

Thus, it’s a market design problem — not an energy mix problem. The two overlap, but in terms of the source of the high prices, literature suggests it is the former that’s the real culprit.

Jesse Jenkins's picture
Jesse Jenkins on Jul 18, 2013

Hi Christos,

Yes this is largely an issue with retail tariff design. Wholesale markets do fluctuate dynamically, as the post describes, reflecting the cost of supplying the marginal megawatt-hour at a given location on the grid (either by zone as in New England or specific point or “node” as in PJM). But whereas wholesale prices fluctuate to reflect marginal costs, retail prices generally do not. Most of us are on flat tariff rates, where each kilowatt-hour we consume costs us the same regardless of whether its in the dead of night or the heat of day.

Some utilities have tiered or time-of-day tariffs that help more closely reflect the difference between peak and off-peak consumption. Some even update these seasonally, as a peak day in the summer looks different (and costs differently) than a peak day in the winter or spring. But even those are fixed tariff rates for each tier, so they don’t pass along a price signal when prices spike and reach levels like we were seeing yesterday afternoon (and will again today and likely tomorrow as well). Instead, utilities and system operators have to rely on “demand response” markets to try to send price signals to reduce demand at these times by paying people who voluntarily reduce their demand. Companies like EnerNOC have done an excellent job capitalizing on and building out this kind of business opportunity, and the PJM system operators in particular have done a great job integrating these kinds of demand response providers into the market for peak power and reserves. 

In the long run however, many economists argue we should be moving towards something reflective of real-time marginal costs of supplying power, so that consumers can truly respond to the real cost of electricity at that moment. This is known as “real-time pricing.” Here’s an NBER article from UC-Berkeley energy economist and contributor Severin Borenstein on the topic.

Thanks for reading and for the great question. Cheers,


Nathan Wilson's picture
Nathan Wilson on Jul 19, 2013

From a system design perspective, dynamic pricing makes sense.  But I like my air conditioning on hot days (i.e. the same times that electricity would be expensive with dynamic pricing systems), and would rather the system cost be spread around somewhat.

I would not mind dimming the lights a bit when the grid was stressed, but of course my energy-efficient lighting uses much, much less power then the A/C. Of course most other appliances (TV, computer, refrigerater, oven, clocks, garage door lift) simply must function when I want them, irrespective of energy cost.

So since I mostly don’t want to respond to energy price signals, why bother sending it to me?

Nathan Wilson's picture
Nathan Wilson on Jul 19, 2013

On the issue of burning oil to make electricity: oil is a conveniently storable form of energy.  But natural gas is also stored (in underground caverns or sealed porous formations) in some parts of the country.  Perhaps New England needs to build more natual gas pipelines.

Of course in the distant future when fossil fuels are out of favor, perhaps we’ll implement seasonal energy storage with ammonia.  Ammonia can be made from clean energy in the spring and fall when electrical demand is low, and (when refrigerated), can be stored like oil in huge unpressurized tanks.  In the summer and winter, it can be converted back to electricity using fuel cells or combined-cycle plants (gas turbine with steam bottoming).  Or better yet, we can use the stored ammonia for automobile fuel, to avoid the conversion back to electricity.

Jesse Jenkins's picture
Jesse Jenkins on Jul 19, 2013

Hi Nathan,

What you’re pointing to the is the very high utility of electricity consumption. But that doesn’t mean that there will be no demand response to dynamic/real-time price signals. For example, if you had a home energy management system (an “energy box”) that automatically managed your major electricity loads in response to price signals and your stated preferences, you might be ok, for example, with ticking up the AC thermostat setting a degree or two when prices spike, or you might program the system to heat water for a shower in the AM hours, and switch off during the day, or you might tell it to shut off all of your DC-based plug loads which are constantly draining power for the AC-DC converters attached when not in use, etc. Small actions across hundreds of thousands of users can make a real difference on the peak demand days.


Also, it’s worth noting that you may see higher rates under dynamic pricing during the peak demand hours, but also lower rates during the off hours. So your annual bill shouldn’t be higher (in fact it should be lower). We all pay for those peak demand periods in our rates anyway, but we do so inefficiently, since energy demandf or which the utility derived from that demand is less than the marginal cost of supplying energy at the peak is still consumed, as we see average prices not marginal prices. So we incurr higher than necessary system losses, we have to build more peak power plants than we should need, etc. All that drives up our annual costs over the course of the year, and thus the average rates we pay in our flat tariffs. 

At this point, the residential demand response market is a tough nut to crack though, since the individual savings are relatively minor and the transaction costs can be prohibitive. That’s why I dont think this happens for residential consumers until automation of loads and smart energy managements systems are available. That’s a market many entrepreneurs are trying to crack open now though.

More immediately, the market for large commercial and industrial demand response programs are booming. Boston-based EnerNOC is making plenty of money on those markets during this record-setting week in New England, I can assure you.

Pieter Siegers's picture
Pieter Siegers on Jul 19, 2013

I think that these type of events point out that by adding solar power New England can lessen demand on hot days, and thus prevent climate change to worsen and really do something about the problem.

Of course, adding more pipelines would worsen the climate change problem and do not solve the issue.

Why is it so hard for people to understand that we MUST leave fossil fuels behind to be able to combate climate change effectively?

Germany’s great example of how solar provides the extra demand during the day and wind power during the night shows that today we can effectively prevent these events as in New England to happen. We only need to work harder on getting energy storage working, thereby lessening the current fossil fuel demand during the day/night.

There will be a day when this type of energy management has been adopted by the majority of countries, as otherwise we won’t be able to combat climate change. The sooner it comes the better, for all of us.


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