Stormy weather and the impact on energy prices in the US Northeast

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The US Northeast and eastern Canada received a severe pounding by winter storm Nemo this past week.  The extreme blizzard dumped multiple feet of snow across many areas including New York.

The storm continued the trend of high energy prices in New York since the holiday season (see figure 1). While electricity prices didn’t reach their peak from late January, they did remain higher than late 2012. Weather is the major driver of both electricity and natural gas prices on the east coast as can be seen by the strong correlation in figure 1.

Figure 1: AccuWeather’s NYC Temperature data is shown against local electricity and natural gas prices.  It shows that prices are typically stable but react strongly to decreases in temperature.

Weather’s impact on electricity and natural gas prices is correlated strongly with demand.  With extreme temperatures, particularly in the winter, demand for electricity increases to meet the heating requirements of the region. This is a driver of natural gas prices because natural gas makes up a large portion of the generation capacity in the northeast.

Figure 2: AccuWeather’s NYC Temperature data is shown against actual electricity load aggregated by week of the year and it shows a strong positive correlation between demand and temperature in the warm weeks and a strong negative correlation in cold weeks.


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