As Texas temperatures rise, will ERCOT electricity prices boil over?

When record-setting heat swept across Texas in mid-July 2018, ERCOT only narrowly avoided a blowout in power prices with the help of unusually low outages and the fortuitous arrival of a weekend. This summer may be unlikely to get as hot as last year, but shrinking reserve margins continue to emphasize the possibility of surging summer prices. Taking into account increasingly tight reserve margins, upside under ERCOT’s recently revised shortage pricing formula, and higher dependence on wind generation, markets currently appear to understate that risk, S&P Global Platts Analytics forecast shows. Capacity and price signals ERCOT is a unique market that reflects Texas’ love of self-sufficiency. The bulk of the region is deregulated, meaning that power generation is owned separately from transmission assets. End-users are mostly limited to buying electricity from the utility in their region, but that electricity can come from any number of providers. But ERCOT is also one of only two energy-only markets in the US, so these power producers earn revenue only from energy sales, rather than supplementing that with payments for available capacity, a practice common to other regional US markets. As a result, companies are incentivized to retire or build generation via energy prices… continue reading

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Source: CTRM Center

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