Texas electricity rates are expected to go up in 2018 as the state’s electricity grid experiences growing pains. 2018 will see the closing of a number of coal fueled power plants. Coal has been giving way to cheaper electricity fuel sources for a number of years.
The growth in wind power and natural gas fueled power will offset the loss in coal over time but for the summer of 2018, expected record demand for electricity will converge with power plant closures to put a squeeze on wholesale electricity rates. This, in turn, will cause the retail electricity prices paid by most Texas consumers to increase. The rise in wholesale rates could be particularly dangerous for consumers who have electricity plans that are tied directly to the wholesale price of electricity.
The rise in prices could be felt more in areas like Houston. Houston electricity rates tend to be higher that rates in the Dallas / Fort Worth area. Average summer temperatures also tend to be higher in the southern part of the state.
Reserves to fall below comfort level
The state of Texas typically targets a reserve margin of 13.75%. This means that the available supply of electricity should exceed the projected peak demand for electricity by at least that amount. This give a cushion for unforeseen spikes in demand or lose of capacity such as could be experienced during a large storm.
The most recent projections by ERCOT put the reserve margin during the summer of 2018 at 9.3%. This number is expected to climb to 11.7% by the summer of 2019 as newer power plants come on line.
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Numbers released recently by the Energy Information Administration show that electricity sales in the U.S. continue to slow. For the 5th time since the 2008 recession retail electricity sales have actually declined. The biggest declines were seen in the industrial sector. While the residential and commercial building sectors were more or less flat.
There is no one simple explanation for the decline in growth of electricity usage in the U.S. Rather, it’s a result of a number of factors. In the residential sector, the number of households has increased. Yet energy efficiency regulations and improvements the energy efficiency of newly constructed homes have offset the effect of having more households. The EIA report also credits more aggressive federal energy efficiency standards for appliances with the slowdown in household electricity usage. For the commercial and industrial sectors the numbers reflect a continued sluggish economy and a shift of the type of manufacturing performed in the US.
While the government numbers provided no regional breakdown, a separate report by ERCOT, the agency responsible for maintaining the Texas electricity grid showed an increase in electricity usage in Texas for 2015. Since the 2008 recession the U.S. has seen a general population shift to the South and West. Population growth in Texas has likely offset the effect of more energy efficient building and federal energy efficiently standards and appliances.
Texas has also seen cheap electricity rates for a number of years which takes some of the pressure off of consumers to conserve energy and spend on energy efficiently efforts. A website operated by the Texas PUC seeks to help Texas homes and businesses conserve energy with energy saving tips such as “save up to 16% by turning you’re A/C 1-2 degrees warmer”.
ERCOT, the Texas electricity authority, reported an increase in total system-wide electricity usage for 2015. This is due in large part to record breaking summer demand for power which saw a peak demand record of almost 70,000 megawatts. In total, Texans served by ERCOT consumed 347.5 million MWh of electricity which constituted a 2.2% increase in demand over 2014.
2015 saw a streak of new record peaked demand periods. The top 5 all-time peak demand records all came within a one week period in the summer.
69,877 MW — Aug. 10, 2015
69,775 MW — Aug. 11, 2015
68,979 MW — Aug. 6, 2015
68,731 MW — Aug. 7, 2015
68,683 MW — Aug. 5, 2015
Wind continued its ascendance in the Texas electricity market, surpassing nuclear to become the third largest source of power. Wind energy accounted for 11.7% of the state’s power usage for the year. Cheap natural gas meanwhile continued to displace coal generation. For the year natural gas accounted for almost half of the state’s power while coal fell from 36.0% to 28.1%.
Energy usage in 2015 consistently exceeded 2014 with only the month of December seeing a decrease over the previous year due to moderate weather.
The mild and windy December led to an impressive showing for Texas’ wind portfolio. On December 20th Texas set a new all-time record for wind energy production with wind turbines contributing over 40% of the system-wide electricity at times. For many, this came as proof that the state’s infrastructure can, in fact, handle the intermittent nature of wind power without causing problems for the grid.
2015 also saw the first Texas city to commit to becoming become 100% dependent on renewable energy. What made the announcement of Georgetown all the more remarkable is the fact that the switch is driven by the desire for cheap electricity rather than purely environmental considerations.
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The Electric Reliability Counsel of Texas (ERCOT) is feeling a little better about Texas’ chances of having enough electricity to meet demand this summer and in 2014. The North American Electric Reliability Corp (NERC) is not so sure. NERC is the federal authority responsible for the reliability of the country’s electricity grids.
ERCOT has issued a number of warnings in recent years about potentially not having enough electricity supply to meet demand during peak periods; warning last summer that blackouts or calls for emergency conservation could occur if there was a sudden spike in demand our unexpected loss of power generating capacity.
At issue is the so called reserve margin. The reserve margin is the safety cushion between expected peak demand for electricity and the supply that the electricity grid is able to provide at full strength. Having an adequate reserve margin insures against blackouts in the event of weather related spikes in electricity demand such as summer heat waves. It also helps in the event that there is a loss in power production as sometimes happens as a result of bad weather.
13.75% is considered an adequate reserve margin for the Texas electric grid. NERC anticipates that Texas will have a 12.88% reserve margin (pdf) this summer. That equates to 6,780 MW of power. ERCOT officials, however, are saying that they are comfortable that the state will make it through the summer without any significant issues based on their projections of a relatively mild summer.
Texas, which operates its own grid independent from the major continental US grids, is deregulated and relies on free market dynamics to ensure that there is enough electricity to meet demand and that electricity prices reflect market balance. In this model, independently owned power producers sell their electricity to retail electricity providers in a wholesale market.
Cheap electricity in Texas for the past few years, while great for the consumer, has made it tough for power generators to invest in more capacity. This has resulted in the current tight margin between supply and demand for electricity and has lead some to (unsuccessfully) try to push the state into a capacity market model for electricity. ERCOT indicates that new natural gas power plants expected to come online in 2014 along with an improved demand response program will improve the situation going forward.
ERCOT, the agency responsible for maintaining the Texas electricity grid, has updated its 2013 forecast of supply and demand for electricity in the state. The new outlook still shows the spread between supply and demand being uncomfortably tight, but shows an improvement over earlier projections.
Planners like to maintain a reserve margin of 13.75%. The reserve margin is the safety cushion between the amount of available capacity in the system and anticipated demand. Having adequate reserve margin helps protect consumers against the possibility of an unexpected loss in capacity or an unexpected spike in demand.
An example of an unexpected loss in capacity occurred in February of 2011 when a powerful winter storm brought a handful of power stations down as the frigged temperatures and ice caused equipment failure. As a result, officials were forced to implement rolling brownouts in parts of the state including the Dallas/Fort Worth area.
An example of a spike in demand occurred late that same year when a record heat wave had air conditioners running on high from Houston to Dallas. On this occasion, blackouts were narrowly avoided.
ERCOT projects the reserve margin will drop to 13.75% next summer. By 2014 that number is expected to drop to 10.9%.
The state has recently undertaken several steps to try to improve the supply of electricity including raising wholesale electricity rate caps by 200%. This move will eventually lead to retail electricity providers raising rates. Electricity rates in Texas are near multi-year lows.
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As most Texans know, Mother Nature can be severe at times. February 2011 was brutally cold, and ERCOT had to resort to rolling blackouts across the state for several days because our electricity production capabilities were not able to keep up with demand. That same year had an extremely hot summer, and rolling blackouts were narrowly avoided, though we had to purchase power from several states and even from Mexico in order to keep the lights on.
Texas is unique to all of the other lower 48 states in that we have our own power grid. The rest of the continous states receive their power from two electric grids, one for the eastern half of the US and one for the western half.
Up to this point, Texas has tried to stay independent from the other two grids in order to avoid federal oversight. Although we currently have a few lines connecting outside the state, Texas may soon have to increase its cross-border connections in order to avoid future blackouts.
One proposal that is currently on the table is called Tres Amigas, and would cost an estimated $2 billion. The plan would allow a New Mexico facility to connect to all three power grids of the lower 48 states, though the Texas connection would be added after the connection of the eastern and western grids.
Another proposal, the Southern Cross, would also cost about $2 billion and it would include a trasmission line that could move electricity from the Tennessee Valley Authority to East Texas and Mississippi.
Other ideas are currently being batted around, but clearly something needs to be done. As it currently stands, Texas can only bring in enough electricity from outside the state to handle 1.5% of our peak demand. Although we certainly do not want more federal regulators overseeing our every move, we have to take steps to make sure we don’t have to endure rolling blackouts every time Mother Nature reminds us of her power.