Is there a correlation between temperature and electricity prices in Philadelphia, PA? Through the use of day-ahead pricing data from PJM—a regional transmission organization that supplies electricity to Philadelphia—and temperature data from the Franklin Institute in Philadelphia, I will examine the potential relationship between temperature and electricity prices.
The relationship between supply and demand is vital to determining electricity prices. Excess consumption of electricity can lead to black-outs; excess production of electricity can be wasteful and costly. There is currently no way to harness large amounts of electricity for long periods of time. This means that supply and demand must line up closely at all times, or some party is going to experience the negative impact.
I found a definite correlation between temperature and electricity prices. Because temperature impacts demand, prices are affected. Mild temperatures exhibit the lowest electricity prices, while at both hot and cold temperatures, prices are high. This is a U-shaped relationship.