Market participants and other industry experts were at “a
complete loss” as to why electricity prices in the Electric
Reliability Council of Texas, specifically in the South and
Houston congestion zones, more than tripled last week from
the week before.
South zone prices jumped about 355% in one week to average
$440/MWh for delivery last Friday. Houston zone prices shot up to
$315.55/MWh, marking a roughly 240% increase week to week.
The last time prices in the two zones moved anywhere near
those levels was in 2003, when Texas was gripped by a major
winter storm. Prices in the South zone surged to $308/MWh,
while the Houston zone soared to $325/MWh.
Players in the ERCOT market said there are several factors
that could account for higher prices in the region, but all of
them combined still do not explain the developments.
“I don’t think anyone has any clue as to what’s going on
right now,” one Houston-based power trader said. “This market
has never seen anything like this. We’re all sitting here in a state
of disbelief.”
One factor in the daily-market surge is the enormous spikes
in ERCOT’s real-time balancing energy market, the trader said.
On Thursday, prices for one 15-minute interval in the late afternoon
rocketed up to more than $2,350/MWh in the South zone
and to more than $1,530/MWh in the Houston zone. On
Wednesday, however, similar price levels persisted for much of
the afternoon, from around 3 to 6:30 pm CDT.
The trader also said that while daytime temperatures in
southeast Texas were hovering a few degrees above normal in the
90s, and a few transmission lines remained out of commission
for seasonal maintenance, prices still should not have been at
these historic highs.
“We’ve seen some higher loads the last couple of days, but
we’re nowhere near the record,” he said. “Most of the lines
that had been down earlier this month returned a week or so
ago, and the few that are still out should not have that much
of an impact. There is nothing going on right now to cause
these high prices.”
Even though the high demand in the region is still well
below the all-time record, electricity usage did reach a new May
high on May 20. The grid operator reported that systemwide
demand reached 54,766 MW that afternoon, almost 600 MW
above the previous May record of 54,175 MW that was set in
2006. Friday’s load was expected to be even higher, with ERCOT
projecting demand to hit 55,876 MW.
The sharp run-up in prices has left some market players waiting
on the sidelines.
“Trading has dropped off significantly because no one
wants to get caught short in the market,” the trader said. “You
can’t get short Houston or South anymore. The longer this
continues, the less of a market we’ll have. This isn’t even a
market now because there is no fundamental basis on which
to base these high prices.”
Houston has long been one of ERCOT’s most congested load
zones, but many people thought some of the congestion would
be eased with the addition of a 345-kV line running from the
South zone to the Houston zone. Now, almost a year into its
operation, some speculate the line could be causing constraints
as power is delivered to Houston from other parts of ERCOT.
“If the increased power flows on that line have somehow
inhibited the ability to move power from NRG’s Limestone unit
into Houston, that also may be feeding into a constraint issue,”
said Steve Piper, a power economist with Platts. “Still, you expect
the constraints in Houston to cause a premium in the market,
but nothing as significant as we’ve seen lately.”
There also has been nothing unusual on the generation front.
All of Texas’ nuclear power was operating at full capacity, and
while there may have been some other generation offline for
maintenance, it should not have been enough to propel prices to
record levels.
Another possible reason for the soaring prices in the South
and Houston zones is the increased load growth along the Gulf
Coast and in Houston. “The fertilizer industry is growing right
now because of ethanol, and yet gas prices have also sustained
their levels,” Piper said. “A lot of that demand in concentrated
along the Gulf Coast, and until that demand slacks off, prices
could remain high.”
Brian Dafferner, president of Dallas-based GSE Consulting,
echoed that view, saying that since commodity prices are up
across the board, it could be a while before power prices fall back
to more normal levels.
“I’ve been in the business for 11 years and have never seen
anything like this,” Dafferner said. “I suspect prices will continue
to climb until we hit that peak, whatever it is. Eventually, you’ll
get to a point where businesses cannot afford to do business, and
that is when demand will start to drop and prices will follow
suit. I think we’re starting to push that level now, but it’s hard to
speculate what could happen in the next few months. We’ve
never been in a situation like this.”
— Leticia Vasquez
