Texas energy prices spike as demand strains grid

Texas' grid operator is warning of a potential power emergency as extreme heat sends electricity demand and prices skyrocketing to record levels.

With temperatures in Dallas approaching 100 degrees, the Electric Reliability Council of Texas warned that it was increasingly likely the electricity system could experience shortages -- a prospect that could prompt regulators to ease environmental restrictions and allow generators to run at maximum capacity. The region's power supply cushion has fallen close to 2,500 megawatts, less than 5% of total demand on the system.

Wholesale electricity prices have shot up by as much as 21,147% to $3,848.69 a megawatt-hour across the Texas grid. On Monday, they jumped 36,000% to average as much as $6,537.45 a megawatt-hour across the Texas power grid. It's a record that has turned the Lone Star State into the most expensive place to buy power in all of America's major markets.

"Prices could hit the ceiling" at $9,000 a megawatt-hour, said Flannan Hehir, a power analyst at energy data provider Genscape. "We're already a bit tighter than we were at this point yesterday."

Temperatures were forecast to reach 103 degrees in Dallas on Tuesday afternoon before cooling off.

The unprecedented market rally highlights how volatile the Texas power market has become as coal-fired power plants, which have seen their profits squeezed by cheap natural gas and renewable energy resources, continue to close. Texas' grid operator has been warning for months that plant retirements and increasing electricity demand have left it with slim supply margins.

"We are seeing the coal fleet retirement hasn't been replaced with a lot of large gas plants," said Campbell Faulkner, chief data analyst for commodities broker OTC Global Holdings. "We are changing the generation mix, and that is what this is caused by."

Electricity demand hit a record high of 74,531 megawatts as people blasted their air conditioners on Monday afternoon and was already totaling 73,405 megawatts at 2:34 p.m. Tuesday, according to the Electric Reliability Council of Texas.

"Extreme heat across the ERCOT region will continue to result in high loads," the nonprofit corporation said in a statement. "We may set another new record today."

This week's price spikes also underscore how dependent the region's power grid has become on wind farms, which now make up about a quarter of the generation capacity in Texas. Lackluster breezes have contributed to the higher prices, Hehir said.

Wind-power generation in the region has plunged for three-straight days, grid data compiled by Bloomberg shows.

Information for this article was contributed by Brian K. Sullivan, Reg Gale and Millicent Dent of Bloomberg News.

Business on 08/14/2019