While many consider Texas the energy capital of the world, the stark truth is that our state’s electricity grid does not have enough power to meet demand. This summer, we face an energy shortage that may see millions affected by rolling blackouts and increased rates. In fact, the state has already approved a 50% increase in peak electricity prices, with bigger increases potentially on the way.
Luckily, consumers and businesses still have time to act this summer to protect themselves from rising rates right here on ElectricityTexas.
Why is There an Electricity Shortage?
All of the power that flows through the grid cannot be stored in batteries; it has to be generated as it is used. This means the grid has to be able to supply enough electricity as will be required to meet peak demand all at one time, or face potential shortfalls. With all of the new residents and businesses flowing into Texas, there’s more of this demand than ever. To meet it, we need more power plants.
However, unlike other states where the government decides when new power plants are built and charges are added to customers’ bills, in Texas, the construction of new power plants is left to the market. For an electricity production company to invest in a new plant, they have to be sure they will see a return on their investment.
Part of how they make that assessment is the price they are allowed to charge on the wholesale market for electricity in what is called peak times, those times where the grid is especially thirsty. The biggest culprit is the brutal Texas summer, where 100 degree days are common and cooling costs spike. These forty or so days of peak consumption each year can easily drive the majority of a generation company's yearly profit, so the rate they are allowed to charge is crucial.
Right now, many of these companies feel the peak wholesale price is not high enough to warrant new construction. Add in the fact that natural gas prices have dropped dramatically over the last few years, and many production companies don’t feel safe enough right now to build new plants.
How Are We Solving the Shortage?
To help make sure the grid has enough power, the Texas Public Utility Commission (PUC) voted in June to approve raising the cap on how much a producer could charge for peak electricity on the wholesale market starting in August. The PUC raised the cap from the current $3,000 per megawatt hour to $4,500, a full 50% increase.
While that might seem like a dramatic jump, many analysts feel that price will have to jump even higher to spur new development. Some have predicted that rate skyrocketing thousands more before the generation companies change their minds. However, even if the new caps entice businesses to build new plants, they will not be online any time soon.
The good news is that the low price of natural gas has made it economically viable to run older, less efficient plants that have been “mothballed”, but are coming back online. Add in the new higher caps, and the incentives to get older units back online are even sweeter. The generation from these plants might be enough to bridge the demand gap until new units come online.
Will There Be Blackouts?
It’s impossible to tell now whether Texans will face rolling blackouts this year, and if so how severe they would be, as there are so many factors in play. These factors include the weather, how many old plants can be brought online, and how much consumers are able to conserve power during peak times.
The Electric Reliability Council of Texas (ERCOT), the group that manages our grid, has been warning about the potential for rolling blackouts for months now. However, taking into account the measures mentioned above, ERCOT has said that the likelihood of rolling blackouts has diminished, though it still remains a real possibility.
What Does All of This Mean for My Bill?
The potential shortage, the new higher rate for peak electricity, and the possibility of even higher rates in the future could have Texans paying higher rates for electricity very soon. While the new higher caps only affect the wholesale prices producers can charge during peak hours, those costs could have a lasting effect on the price consumers pay for electricity, potentially adding hundreds more in electricity charges each year.
How Can I Protect Myself From Rising Rates?
The easiest way to avoid seeing a big spike this summer is to lock in a rate as soon as possible. You’ll need a fixed rate plan to actually lock in a rate, as variable rate plans do not offer price protection and can fluctuate in cost month-to-month. A fixed rate plan lets you lock in a rate for a certain amount of time, from as little as six months to as much as two years or more. You’ll be in a contract with the provider for that term, but you will know now exactly what rate you’ll be paying for electricity for the term.
As the Texas electricity market is deregulated, millions of Texans have the power to choose their electricity company. These companies are forced to compete with each other not only on price, but also features. While in the past you many have only had one choice for your electricity, you now may have the ability to choose amongst a wide variety of companies that offer many different plans, including many attractive fixed rate options.
ElectricityTexas is here to help you sort out your options. Enter your address at the top of the page now to see what providers and plans are available in your area and lock in a rate before prices rise.
Commercial customers can lock in rates on ElectricityTexas, too. Just head over to our business page or dial 1-866-915-8056 now, and one of our commercial electricity experts will start working to find you the best quotes available right now, with no obligations or fees.