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Watch: Texas summer wholesale power prices continue to gain strength

Texas summer wholesale power prices continue to get stronger after remaining depressed for several years. The upticks this year have been largely attributed to a tighter generation picture and expectations for record peak demand.

According to S&P Global Platts data, ERCOT North Hub, the most liquid trading point in Texas market, has recently seen the August on-peak forward package hitting near $240/MWh, more than double from where it traded at the end of 2017.

The recent strong prices have been mostly driven by a lower reserve margin -- the percentage difference of generation capacity and peakload forecast.

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Video Transcript


Welcome to the Snapshot, a series examining the forces shaping and driving global commodities markets today.

Texas summer wholesale power prices continue to get stronger after remaining depressed for several years. The upticks this year have been largely attributed to a tighter generation picture and expectations for record peak demand.

According to S&P Global Platts data, ERCOT North Hub, the most liquid trading point in Texas market, has recently seen the August on-peak forward package hitting near $240/MWh, more than double from where it traded at the end of 2017.

In comparison, summer prices over the past couple of years have turned out to be lackluster.

For example, ERCOT North Hub on-peak day-ahead prices averaged in low $30s/MWh in August 2017 and mid-$30s in 2016.

In summer of 2011, the hottest summer on record for Texas, prices averaged about $250/MWh.

The recent strong prices have been mostly driven by a lower reserve margin -- the percentage difference of generation capacity and peakload forecast -- as the grid operator projected it to be only 11% this summer, which is below the target level of 13.75%.

The current situation facing Texas has not occurred out of nowhere..

As an energy-only market, low prices in ERCOT have pushed more costly, older generation units out of the market, especially since late last year, when over 5 GW of fossil-fuel generation was announced to be retired before the summer.

The retirements come as the Texas economy has continued to grow at record pace over the past few years, supporting both industrial and consumer load growth

This in turn has ERCOT projecting record-breaking demand this summer at 72.8 GW, which is about 2% higher than the all-time high set in 2016.

This spring, Texas has already had a taste of volatile prices ahead of summer season.

In mid-May, real-time power prices across ERCOT spiked above $1,000/MWh as temperatures reached into the 90s and air-conditioning demand soared.

Also amid the May heat, the grid operator set multiple record peakloads for the month, surpassing the previous May record by more than 7%, which was just set last year.

Further, the recent price run-ups come on the heels of a historic price event seen earlier this year.

During cold weather in January, ERCOT real-time prices crossed the $9,000/MWh price cap for the first time in history, and forced the grid operator to call upon about 1 GW of reserve resources.

Expect the grid operator and power market players to keep close watch over Texas as things heat up.

And until next time on the Snapshot – we’ll be keeping an eye on the markets.