Outlook 2025: Texas summer power prices may top 2024 levels on weather, strong gas

High temperatures and strong natural gas pricing could cause prices in the Electric Reliability Council of Texas Inc. power market to return to triple-digit levels in August 2025, compared with August 2024 averages in the mid-$40s/MWh. However, surging renewable capacity might tame prices throughout the rest of 2025, judging by current forward indexes.

Recent Platts M2MS power forward curves showed ERCOT North and Houston hubs' on-peak July pricing at about $110/MWh and August pricing above $167/MWh. ERCOT's own day-ahead on-peak locational marginal prices (LMPs) averaged in the mid-$30s/MWh and mid-$40s/MWh in July and August 2024, respectively. Platts is part of S&P Global Commodity Insights.

By comparison, day-ahead on-peak LMPs for the North and Houston hubs averaged in the mid-$380s/MWh in August 2023.

"The August forward curve is in line with market fundamentals, especially since the National Oceanic and Atmospheric Administration forecasts above-normal temperatures across the entire state this summer," said Michael Pickens, associate director for North American power at S&P Global Commodity Insights.

ERCOT's preliminary summer weather outlook, issued March 5, forecast "mostly normal to above-normal temperatures," with "top 10 potential" for hottest summers.

"Four of the past six summers have ranked within the top 10 hottest," ERCOT said.

Adding, retiring generation

ERCOT is likely to add 26.8 GW of capacity in 2025, including 12.3 GW of solar and 11.8 GW of energy storage, according to an analysis of S&P Global Market Intelligence data. That would be a significant increase over the 14.5 GW added to the Texas power market in 2024.

With 574 MW of gas and wind retirements planned, ERCOT should see a net gain of 26,176 MW.

Among the biggest solar projects slated to come online in 2025 are Vesper Energy Development LLC's 600-MW Hornet Solar Project in Swisher County, which entered service in early April, and the 500-MW Outpost Solar Project in Webb County, owned by Hecate Energy and Repsol SA.

Notable storage projects include the 317-MW Apex Bethel compressed air energy storage facility in Anderson County, owned by Apex Compressed Air Energy, and the 304-MW Jarvis Energy Storage Project (Ironman) in Brazoria County, owned by UBS Asset Management AG.

The retirement of 447 MW at CPS Energy Inc.'s gas-fired V.H. Braunig plant accounts for most of ERCOT's lost capacity in 2025. To maintain reliability, the ERCOT board in February approved moving 15 diesel-fueled mobile generators from Houston to San Antonio for two years to help offset the loss of capacity from the two Braunig units.

The remaining retiring capacity in ERCOT is 127 MW at the Champion wind farm in Nolan County, which plant owner RWE AG is replacing through a repowering project.

Through the end of March, the system had already added 2.5 GW of solar and 895 MW of battery storage, according to ERCOT data. Another 202 MW of solar and 469 MW of battery capacity are slated to come online by June.

Texas policymakers have pushed for more dispatchable generation, offering low-interest financing for natural gas generation through the Texas Energy Fund, with little result so far. Only 9 MW of net additions are scheduled for 2025, bringing total gas-fired capacity to 65.2 GW.

The nameplate capacity of ERCOT's generation stack is expected to reach 187.3 GW by the end of the year. Combining existing gas-fired, coal-fired, nuclear and battery storage capacity, ERCOT had more than 98.4 GW of dispatchable nameplate resources as of March 31. Market Intelligence data forecasts that dispatchable nameplate resources could top 105 GW by the end of December.

Market to tighten in summer

However, a tight summer power market seems likely, judging by forward curves. Solar and wind fleets are likely to produce only a fraction of their nameplate capacity during the highest net peak periods, typically before sunrise and as the sun sets, when the system relies on thermal and battery capacity.

"Given the current state of summer risk and the generation composition in ERCOT, any [July–August] prices between $135.00[/MWh] and $180.00[/MWh] seem reasonable at this time," said Campbell Faulkner, senior vice president and chief data analyst at OTC Global Holdings, an interdealer commodity broker. "This is doubly the case with the elevated gas prices and more normalized heat rates, especially as compared to last summer."

Recent Platts M2MS gas forward curves showed Houston Ship Channel July and August gas at nearly $4/MMBtu, compared with Platts-assessed Houston Ship Channel spot gas averaging about $2/MMBtu for those months in 2024.

"We would argue that the forward curve is underestimating how tight the market is likely to get this summer and into next winter," said Matthew Palmer, Commodity Insights research and analysis executive editor for natural gas. "We project Henry Hub prices to rise to $4.24/MMBtu for the year, with inventories ending the winter 2024–25 around 1.7 Tcf."

The end-of-winter storage level was almost 150 Bcf below the five-year average and more than 500 Bcf below March 2024 levels. "Storage stocks are expected to remain below the five-year average for the balance of 2025, assuming normal weather," Palmer said.

ERCOT's most recent Capacity, Demand and Reserves (CDR) report, issued in February, indicated that load would likely peak during the summer months at about 86.7 GW, up about 1.1 GW from the record peak load set Aug. 20, 2024.

Price volatility possible

OTC Global's Faulkner cautioned about the possibility of price volatility this summer.

"Prices for the summer heavy load strip are always extremely difficult to predict given that real-time and day-ahead prices in summer are extremely sensitive to specific weather-induced load profiles," Faulkner said. "Further, it is becoming increasingly difficult to perfectly build a model to account for demand response and coincident peak load shaving. As such, given the expected load and making the assumption that the economy does not massively deteriorate, prices this summer appear correct given the nominal tightness and generation portfolio."

Texas business leaders "are flashing warning signs with growth likely to slow further below trend in 2025," Pia Orrenius, Federal Reserve Bank of Dallas vice president and senior economist, told ERCOT board members at their most recent meeting.

"Business sentiment has been on the wane since [fourth-quarter 2024], and the disinflation that has been seen appears to be indicative of a weakening economy when combined with a change in fiscal policies," Faulkner said.

Determining whether a recession is coming or has started is difficult, Faulkner said.

"In the case that the Texas economy does slip into a full-blown recession, I do expect it to trim 1[%]-2% of aggregate load via reduced commercial and industrial activity," Faulkner added. "As always, it is super difficult to tell what the ultimate sensitivity of prices would be until you get past the actual events."

However, Commodity Insights' Pickens said, "Electricity demand may be more resilient than in previous business slowdowns given electrification trends," as weather-adjusted load is up 2% through the end of March.

"Even if electricity demand decreases, wholesale electricity prices are still expected to rise in 2025 due to higher natural gas prices," Pickens added.