Texas power prices jumped more than states hit harder by polar vortex

HOUSTON — The notion that everything is bigger in Texas held true last week when power prices jumped as a winter chill blanketed the nation.

Texas power prices increased more than 1000 percent last Tuesday over the previous day. That was a much larger jump than in East Coast markets, where power prices increased by just 200 percent to 400 percent, according to an analysis by ICF International.

When cold temperatures swept across the state on January 6, Texas, like other electric grids, experienced a number of power plant outages, which forced emergency alerts and a call for reserves.

But because of its market structure, the shortages in Texas caused greater price increases than the grids in New York City, Massachusetts or Illinois. In Texas, the power price cap is $5,000 per megawatt-hour. In the PJM market, which includes 13 states in the Midwest and Northeast, the cap is $1,800 per megawatt hour.

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“The highest prices in the U.S. occurred in the ERCOT region,” the ICF International report noted, referring to the state’s grid manager, the Electric Reliability Council of Texas.

Real-time power prices soared more than seven times higher than the day-ahead market had forecasted on Jan. 5. The day-ahead market typically provides a fairly accurate prediction of how electricity will be priced on the spot market the following day, based on expected supply and weather conditions.

While East Coast electricity markets had higher real-time prices during the first week of January, they were only about double the prices on the day-ahead market.

For example, New York City’s Jan. 6 power price on its day-ahead market was $108 per megawatt-hour, but the real-time price shot up to $197 that day. Even on Jan. 7, the coldest day of the polar vortex, New York City’s power price rose to $419 per megawatt-hour, compared to the day-ahead price of $204 per megawatt-hour.
These price increases were attributed mostly to high demand and pipeline constraints for natural gas supplies, the report said.

“This raises the question as to whether the [Texas] system operated reasonably well under extreme circumstances,” ICF International wrote, recommending that possible changes in the resources used to generate electricity should be reviewed, as well as possible market structure changes.

The report also recommended reviewing how peaking generation, which is typically only used in the summer months, is scheduled for use.

Power price increases for Jan. 6 and Jan. 7
Power price increases for Jan. 6 and Jan. 7