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EnerWisely, Texas Electricity prices forecast 2022

Texas Electricity Prices Forecast

Texas electricity providers are warning customers that the high rates could linger for months or longer. Read on this Texas Electricity Prices Forecast to learn what is behind and what to expect?

Texans are seeing skyrocketing home electric bills this summer, with many customers paying 50%, 60% and even 70% more than they did for electric bills at this time last year.  Lone Star State residents signing new contracts in June 2022 were paying 18.48 cents per kilowatt hour—10.5 cents more compared to the 7.98 cents paid last year.

Why Are Electricity Rates in Texas rising?

Many factors have contributed to a challenging summer for consumers. We wrote this guide to help you understand the factors driving the energy market and how to adapt to a period that can bring high temperatures, high usage, and high costs.

Inflation is impacting electricity prices

Based on the consumer price index, the key measure of inflation in the USA, consumers spent on energy is at an all-time high. Electricity price has increased drastically since 2020. This is partly related to inflation which is increasing prices in general. The electricity price forecast graph below illustrates how electricity price increases have trended above the consumer price index since 2020. This means that the real price of electricity is increasing independently of inflation.

 

EnerWisely, graph, electricity prices increase versus consumer price index and inflation by Bloomberg

Most of Texas electricity is generated with Natural gas

The cost of electricity is dependent on the cost of fuel used to generate it. 42% of Texas electricity is generated using natural gas. And while Texas produces lots of gas, not all of it stays at home.

Russia’s invasion of Ukraine, and Europe’s reduced consumption of Russian gas has impacted the global supply chain. And yes, it is driving demand for Texas’ gas. As a result, the price of natural gas has increased more than 200% in the last year.

In June 2021, the price for MBTU (million British thermal units) was $3.26. This summer, it reached $9.32 — the highest price in the USA since 2008. So, without an end to the war on sight, it seems that the increase in gas prices won’t be slowing down anytime soon.

Texas energy consumption is increasing faster than supply

In total, Texas added nearly four million people between 2010 and 2020. That amounts to a nearly 16% growth, according to the census data. However, neither the lone state’s gas production nor its power generation has grown at the same pace.

This expansion has caused the summer peak demand for power to surpass 78,000 megawatts (MW), which is 4,000 MW more than it was in 2019. For reference, one megawatt of electricity can power almost 200 homes on a hot Texas day.

Texas winter storm has lingering effects on electricity cost

Also, after Texas winter storm URI, the reliability of power in Texas has become a major concern. That’s why, Texas grid operator, ERCOT, adopted measures to increase reliability including:

  • Weatherization of power plants. However, this measure doesn’t cover the gas infrastructure that also failed during Texas’ winter storm.
  • Elimination of wholesale indexed electricity plans for residential and small commercial customers
  • Changing the operation mode of backup power plants.

Before the 2021 winter storm, power plants ramped up or went offline based on market demand. Now ERCOT asked power plants to be online and available in case they’re needed. This means paying generators a prescribed price to operate no matter what happens.

Experts say that while there are benefits to a more conservative grid operation, it also means extra cost. This ends up increasing the Texas electricity price forecast for 2022 and impacting your pocket.

The weather events are impacting Texas Electricity Price Forecast

Texas weather is a big risk factor for Texas residential electricity prices. Under normal weather conditions, residential electricity use represents only 20% of the total grid load. But during a heat wave? Or a cold front? Residential electricity use spikes to almost 50% of the total ERCOT load. That’s because homes in Texas use almost half of their electricity to heat or cool their homes. So, when the heat hits Texas, homes ramp up their AC.

Electricity companies purchase part of the electricity that they sell on the wholesale spot market. So as these prices increase during extreme weather events, electricity providers factor in this risk as higher electricity rates.

Texas Electricity Price Forecast: what’s the outlook?

Now you know the factors affecting electricity prices. At the end of the day, it is about supply and demand. That is why forecasting how much energy will be used and planning the resources required is critical.

To ensure reliability of electricity supply, grid operators like ERCOT, use a Reserve Margin. It is the difference between the amount of power generation capacity that is available, in excess of the amount of power demand that is expected. The reserve margin covers for uncertainty in future demand, generator availability and new resource supply.

Each year ERCOT generates is Capacity, Demand and Reserves report. The CDR provides a 10-year forecast of the Planning Reserve Margins for the summer and winter Peak Load Seasons.

Electricity prices can increase despite ERCOT good reserve margins

ERCOT has a target reserve margin of 13.75%. This means that Texas’s grid has 13.75% more energy available compared with the anticipated usage. For 2022, ERCOT’s reserve margin is 22.8%. This is a positive sign to the market of system adequacy, or sufficient supply for the summer.

However, ERCOT’s reserve margin projections assume an “average” or typical weather pattern. So, extreme weather events create unaccounted risks. Since heat waves and winter storms can be unpredictable, this wild card introduces uncertainty for ERCOT and electricity companies, driving higher power prices.

What to expect about Texas power capacity?

The good news is that the reserve margin is expected to continue increasing in 2023 and beyond. This should reduce the risk for suppliers and translate into better prices for consumers. In other words, it could improve Texas Electricity Price Forecast.

For 2023, ERCOT plans additional 13,117 MW of energy resource capacity for the 2023 summer peak demand. Most of the additional capacity comes from solar, with gas projects representing the lowest contribution.

  • 11,702 MW of solar resources
  • 834 MW of wind resources
  • 581 MW of summer-rated gas-fired resources

Additionally, ERCOT is planning 4,831 MW of battery storage capacity to support the grid reliability (Ancillary Services) for short periods. However, this storage capacity isn’t expected to support customer demand on a sustained basis during peak demand hours. For this reason, ERCOT does not include this resource for the reserve margin calculations.

How can I reduce the impact of  Texas Electricity Price Forecast?

There are multiple factors increasing Texas electricity prices. Here are the top 10 tips to keep in mind when choosing your electricity plan and to make some extra money:

  1. Choose a long-term fixed, basic electricity plan if you want to avoid surprises. They are normally the best choice for most homes.
  2. Check if a Tiered rate plan works for you. They don’t work for every home but could be your cheapest choice. Don’t ignore them.
  3. Use a smart shopping tool that analyzes your electricity usage history to find the electricity plan most compatible and cheapest for you.
  4. Find free alternatives to paid subscriptions. Thanks God, the best deal finder for electricity plans is free to use.
  5. You can get lower rates for electricity with a long-term contract (24-36 months) compared to a shorter-term contract (12 months).
  6. Remember, ERCOT new measures combined with summer heat waves and the Ukraine war are driving higher prices for 12-month electricity.
  7. Look for seasonal opportunities in the spring and fall. Cheaper short term electricity contracts (less than 12 months) may be available then.
  8. Sign up for our electricity plan expiration reminder service right now. We’ll remind you to come back and shop for the best electricity deal.
  9. Most Texas homes waste 30% of the energy they use. Take our quick online energy quiz and fix this. It could lead to a 30% off your electricity bill.
  10. Order your electricity plan with EnerWisely and enter to win $2,000. The only free service that finds the best electricity deal and helps you eliminate energy waste.

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