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Higher Temperatures Increase Demand, Price

August 6, 2012

Above-average summer temperatures in New England have increased electricity demand for cooling, thereby driving up the price of power. Temperatures in the second half of June, on average in July, and so far in August this summer have been above average. AccuWeather Inc. reports on its website that temperatures in July have been consistently above average in Boston, Massachusetts: 21 out of 31 days in July saw high temperatures above historical averages for highs. On average, each day in July was 1.87 degrees Fahrenheit above its historical average. A similar trend seems to be taking form in the first few days of August.

Last Thursday is a good example that higher temperatures increase demand (and therefore the price) of wholesale electricity in New England. The high that day in Thursday in Boston, MA was 86 degrees, 5 above the historical average, and the forecast for last Friday was 93 degrees, 12 above the historical average (the high in Boston turned out to be 92 degrees). As of 1:30 P.M. last Thursday, the power consumption on the New England grid was 22,716 megawatts (MW), 9 percent higher than the forecast for that time. The higher-than-expected demand, as a result of these higher temperatures, contributed to the higher prices.

In Boston, according to data compiled by ISO New England Inc., electricity was priced at $189.74 at 1:36 P.M., dwarfing the day-ahead price for the same hour of $57.77. These higher-than-normal prices are indicative of this demand that exceeds estimates, a demand which increases with above-average temperatures.

The Weather Channel reported today that the temperature in Boston was 84 degrees as of 3:30 P.M., 3 degrees above the historical average. The forecast for tomorrow has a high of 81 degrees, equal to the average. AccuWeather projects a high temperature equal to its historical average in Boston, 81 degrees. These temperatures are reflected in the ISO New England Inc. data for today. Power consumption at 3:30 P.M. for Boston was 22,368 MW, below the forecast for 3:30 P.M. of 22,680 MW. The real-time electricity price in Boston at 3:30 P.M. was, accordingly, $63.76, slightly below its day-ahead price of $66.35.