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The Lingering Effects of a Texas Summer

November 21, 2019

Market - ERCOT

This past August, electricity prices in Texas hit historic highs over several days.  Prices rose from the typical range of $20 to $30 per MWh to $9,000 per MWh during the second week of that month.  Figure 1 shows daily prices during the week of August 12, 2019.

ercot image 1-3Figure 1: Real Time Index Prices for Aug 12th - Aug 16th, by 5

High market prices increased both power generators’ revenue and the electricity price paid by consumers floating at index.  Surprisingly, the spike in prices was not correlated to extreme temperature.  Figure 2. shows the temperature during the peak price days in Texas.  It was hot during that second week in August, but well within the range of average historical summer temperatures.

ercot image 2-2Figure 2: Average Temperature in Dallas, TX, by 5

Low output from wind generating assets throughout the state of Texas was likely the driver of these price spikes.   Figure 3 shows wind power generated from assets across the state during the second week of August.  The dramatic decrease in output occurred in the late afternoon when demand on the electricity grid was at its peak.  This is why the amount of electricity available on the grid did not keep up with demand.

ercot image 3-1Figure 3: Total Hourly Wind Generation for Week of Aug. 12-16, 2019, by 5

Figure 4 clearly shows the impact of last summer’s price spikes on electricity futures in Texas.   Prices for calendar year 2020 (dark blue line) have increase by 25% since August.  Similarly, prices in calendar years 2021 through 2023 have also increased significantly.  Over the last couple of weeks, futures prices have softened, but it may be a while before the market fully recovers from the events of this past August.

ercot image 4-1Figure 4: Calendar Year Wholesale Prices - ERCOT North, by 5

Topics: Markets ERCOT
5

Written by 5

Founded in 2011, 5 comprises a team of energy innovators, commodity traders, analysts, engineers, and former energy supplier executives. Together, they serve a broad array of private and public sector clients throughout the United States and Mexico, providing strategic advice on energy-related matters including procurement, demand-side management, rate optimization, regulatory intervention, benchmarking, bill auditing, RFP management, sustainability planning services, renewable power, and distributed generation. With an eye on growth, 5 has initiated a number of strategic partnerships and acquisitions, including the 2019 acquisition of Luthin Associates. 5 has been named to the Inc. 5000 list of fastest-growing companies in the U.S. for five consecutive years. The firm has also received numerous accolades and national awards for its corporate culture, leadership and innovation, including 5 consecutive years as a top 10 Best Company to Work for in Texas according to Texas Monthly Magazine.