A nationwide decrease in wholesale power prices because of cheap natural gas is less evident in Texas because of growing demand that has the state scrambling to find additional generation capacity.
The glut of natural gas — a major power plant fuel — has forced down wholesale power prices in deregulated markets throughout the country, leaving generators with a dismal economic outlook, according to a recently issued Moody’s report.
The muted impact of lower natural gas prices on wholesale electricity in Texas is largely due to a stronger economy, resulting in higher demand, said Toby Shea, vice president of Moody’s.
“Wholesale prices have come down (in Texas),” he said, “but the shortages of power plants have driven prices back up.”
Much of the United States operates in regulated electricity markets, where monopolies generate, distribute and sell the power.
In most of Texas, however, generation and retail electric sales operate in a competitive, deregulated market — as they also do in California, New York and parts of the Midwest, where persistent unemployment and sluggish economics have led to a drop in the demand for electricity.
Low demand has led to closings of several coal plants on the East Coast, but the grid there still has excess capacity, further depressing electricity prices.
Moody’s gives the unregulated power sector a negative outlook for the next 12 to 18 months, saying that the low natural gas prices, combined with weak demand growth and a surplus of capacity, will leave power companies struggling for profits.
The Electricity Reliability Council of Texas operates most of the deregulated Texas grid. Demand for electricity has grown with the state’s economy and population, leading regulators and grid planners to discussion options for adding additional generation.