The "shadow price" spikes

How much will Texas power cost? The Shadow Knows.

No, we’re not talking oil price or rice price, but the price of wholesale power in Texas.
Really early today the price of power in the balancing market — where the state’s grid operator buys small amounts of electricity at 15-minute intervals to keep supply and demand throughout the grid in balance — hit $3,805.72 per megawatt-hour in the Houston area, and $4,514.68 in South Texas, according to data from the Electric Reliability Council of Texas’ web site.
Is that a lot? It is if you believed the cap on the balancing market is supposed to be just $2,250 per mwh.
So what gives? Turns out there’s another price that can get added onto the balancing market price during extraordinary circumstances. It’s a congestion price for getting power to users when the route it would normally take is overloaded. It’s like being compensated for having to drive from Houston to Dallas on only two-lane dirt roads instead of I-45.
The combination balancing price and congestion price is called “The Shadow Price.” That price can actually reach up to $5,600 mwh.
The events that led to the large shadow prices were serious constraints caused by a planned outage of a huge power line between Temple and the Sandow power plant in Milam County and work on power lines connecting West Texas with North Texas. (there was also an unexpected outage at the Sandow plant today but it doesn’t seem that created the problem).
Why should you care? The balancing market sets the wholesale price, and wholesale price impacts what we pay at home for our power.
This could be just a one-time event — Amerex Energy Services analyst Ron Fort said in a note today that the brief spikes “don’t overly concern us (we’ve had spikes before and if you’re involved with the real time market, you’ll see them again).” But he and many others will be watching.