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Texas power prices triple as heat wave expected to boost demand to record highs

By: Scott DiSavino |

Spot power prices in Texas almost tripled for Tuesday on forecasts demand for electricity would hit record levels over the next week as consumers crank up their air conditioners to escape a heat wave blanketing much of the state.

High temperatures in Houston, the biggest city in the Lone Star State, were expected to reach almost 100 degrees Fahrenheit (38 Celsius) every day over the next week, according to meteorologists at AccuWeather. The normal high in Houston at this time of year is 96 degrees.

The Electric Reliability Council of Texas (ERCOT), the grid operator for much of the state, forecast that heat would push peak demand to more than 73,600 megawatts (MW) on Aug. 8 and over 75,300 MW on Aug. 12. That would top the current all-time high of 73,473 MW on July 19, 2018.

One megawatt can power about 1,000 U.S. homes on average, but much less during the peak summer cooling and winter heating seasons.

Next-day power prices at the ERCOT North hub for Tuesday soared to a five-month high of $115.50 per megawatt hour (MWh) from $38.50 for Monday.

ERCOT has said it expects to have about 78,154 MW of generating capacity to meet demand this summer, but warned there was an increased chance low reserves would force it to issue more alerts calling on customers to conserve energy this summer than last year.

When ERCOT declares an alert, it can take advantage of additional resources that are only available during scarcity conditions, including power imports from neighboring regions and demand response programs that pay consumers to curtail power use when needed.

ERCOT has said its planning reserve margin for this summer was a historically low 7.4% because several generators have retired even though demand is rising.

The reserve margin is the difference between total generation available and forecast peak demand, with the difference expressed as a percentage of peak demand.

Generators are retiring because a decline in gas prices due to record and growing production from shale formations, like the Permian in West Texas, has caused power prices to drop.

Lower power prices make it difficult for some generators, like those operating old coal-fired plants, to make money selling electricity.

Prices at the Ercot North hub have fallen to an average of $33.87/MWh over the past five years (2014-2018) from an average of $41.37 in 2009-2013 and $59.19 in 2004-2008.