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Are Texas Power Prices Poised to Rise?

May 13, 2015 By Josh Kessler

The Electric Reliability Council of Texas (ERCOT) forecasted higher reserve margins in its latest Capacity, Demand and Reserves (CDR) report, according to an article in Energy Choice Matters. If accurate, this is likely to spell continued low prices for Texas electricity customers. The previous forecast, completed in December 2014, showed reserve margins will see a steady decline from 18 percent in 2017 to 7 percent by 2024. This month’s revised forecast showed reserve margins increasing through 2018 before declining by about 1.5 percentage points per year to 12 percent by 2024.

ERCOT Reserve Margins

The new report assumes milder summer weather and includes additional natural gas-fired capacity. However, it does not take into account EPA legislation that would require expensive retrofits at 12 coal-fired facilities. Assuming the legislation takes effect as planned this September, some of these facilities might be retired. NRG Energy EVP and COO Mauricio Gutierrez expressed skepticism about the findings, suggesting that the report relied on optimistic assumptions. Gutierrez said the report relies on the convergence of three factors:

  • Slow load growth
  • Substantial new capacity additions
  • Limited retirements of existing generation units

Implications for Retail Energy Buyers

If retail buyers in Texas want to protect against significant price increases that could result if generation capacity becomes more constrained, they should consider signing long-term, fixed-rate contracts. On the other hand, if they believe prices will remain low – or fall further – they may want to consider signing either variable-rate or short-term fixed-rate energy contracts to allow them take advantage of falling prices and avoid the slight premiums that are built into longer-term power contracts.

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