Tuesday, February 27, 2024 Feb 27, 2024
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Energy Industry

The Future of Texas Energy Is More Expensive

The state’s new regulations for the power grid combined with extreme demand amid weeks of triple digit temperatures will eventually hit your wallet.
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The state set two new records for energy demand last week: 79,621 megawatts on Tuesday afternoon and just over 80,000 on Wednesday. A megawatt is enough to power about 200 homes on a hot day. As temperatures sail past 100 across most of Texas this summer, the state’s power grid has bent but did not break.

What is happening with the grid this July isn’t as devastating as what happened in February 2021. But experts say it’s a glimpse into, and a warning about, future Texas summers. With weeks—if not months—of consecutive triple-digit temperatures, there will be days of record-setting energy demand that will lead to higher prices and plenty of teeth-grinding as consumers use up the state’s energy reserves. The Electric Reliability Council of Texas, which manages the power grid, last week ordered thermal plants to delay maintenance to keep generating energy.

And one day soon, all of this will hit your wallet. A research brief by Morgan Stanley estimated that Dallas-based energy giant Vistra earned about $50 million extra dollars in five hours. When Texas deregulated the energy market in 2002, it prioritized lower power bills over reliability during extreme weather events. The state incentivizes additional generation by allowing companies to charge more for power when demand starts to get close to supply.  

Last week, generators could sell energy at the cap of $5,000 per megawatt for about five hours. That’s free money for companies like Vistra; in normal conditions, retailers pay about $50 for a megawatt.

“This is a spike and is certainly the outcome, or the consequence, of what we get to enjoy here in Texas, which typically is lower energy prices,” said Ann Bluntzer, the executive director of the Ralph Lowe Energy Institute at TCU. “We’ve chosen to be a part of a generating market where we don’t overproduce.”

Things get tricky when the weather gets bad. ERCOT’s projections believed that statewide demand of 80,000 megawatts this summer would be incredibly unlikely, assigning it at just a 5 percent chance. Last week, we did the nearly impossible.

The state’s electric grid is independent, meaning Texas must generate its own energy. It does that largely through oil and gas, but wind and solar have recently accounted for just about a quarter of the energy demand. Solar, in fact, bailed us out earlier this month when ERCOT issued a formal conservation alert. That brand of alert precedes the next level of alarm, when ERCOT can order utilities like Oncor to call for rolling blackouts to conserve what’s left of the grid’s energy reserves.

“Renewables throughout most of May and June, as we’ve been experiencing extreme heat, really were the difference between [having] a whole lot of conservation calls and potential rolling outages and not having them,” energy consultant Doug Lewin told Texas Monthly.

With last week’s demand spike, ERCOT has reported new demand records 11 times in the last six weeks, according to the Houston Chronicle. Demand records have never tumbled like this; it typically took anywhere from a year to four years to dethrone a previous high.

Last year, immediately after the freeze, I talked to two men who were the chief executives of the energy retailers Stream and Ambit. They both saw a problem coming. Legislators deregulated the energy market in 2002, hoping to spur competition and innovation and a very Texas brand of economic independence. But it’s akin to being in a floodplain—if you don’t build in protections, you might flood.

Both men feared these extreme summers; their companies buy wholesale from generators and then sell it to consumers. Paying the higher rates amid times of extreme demand would tank their balance sheets. Think of this summer like a slow-burn: it’s likely not the last time retailers will have to pay higher rates for power this summer.

Rob Snyder sold his Stream Energy to NRG for $300 million. Jere Thompson sold Ambit Energy to Vistra for $475 million.

“A lot of retailers are still hanging in there, but I am going to guess that at some point during this week or early next week, 80 percent of the independent retailers of Texas will be technically insolvent,” Snyder told me last week. “These summers are going to be killers. We don’t have enough generation in this state.”

Bluntzer agrees. She sees the future being a mix of traditional energy sources, renewables, and technology that is still in development: “improved battery storage technology, clean carbon solutions, and further research into hydrogen.”

“It’s going to be our traditional energy sources and it’s going to be our renewables. It’s going to be what we don’t even know is out there yet,” she said. “Being able to put that revenue into research and development instead of returning it back to the investors, that would be a game changer wouldn’t it? We can’t afford to not start to move in that direction.”

That doesn’t help us right now, though. In the wake of the freeze, ERCOT instituted a series of new regulations to improve grid reliability during times of extreme weather. An independent monitor last week told lawmakers that those new policies will shift $1.5 billion to consumers, including $900 million that has already been passed on.

Consumers with variable plans will see those hikes sooner than those with contracts. But once the contract expires, look out. And if retailers are having to pay exorbitant prices for energy, that will likely be passed on, too, Snyder says.

“Your next power plan will likely start with a 2,” Snyder says, referring to the cost per kilowatt hour on electricity plans. Current plans in Dallas are around 14 cents per kilowatt hour. “It’s all because we don’t have enough power to go around.”


Matt Goodman

Matt Goodman

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Matt Goodman is the online editorial director for D Magazine. He's written about a surgeon who killed, a man who…

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