Power Prices Skyrocket and Texas Grid Reels with Outages As Winter Storm Pummels Wind and Natural Gas

Fierce winds, sleet, and snow lashed Texas and power grid outages rippled across the state as it experienced its worst winter storm in decades. Customers for the Electricity Reliability Council of Texas (ERCOT) switched on their heating, spiking power demand and prices. Utilities instituted rotating outages to dramatically reduce their share of power usage in the state’s power grid.

According to reports, nearly half of Texas’s wind capacity went offline due to ice coatings on turbine blades and natural gas production and supplies were hampered due to the storm. At 10 AM on Monday morning, when the storm was still raging outside, almost 30 GW of ERCOT capacity went offline. Out of that figure, approximately 26 GW of mostly natural gas capacity was down and the remaining 4 GW of wind energy capacity was down due to icing on wind turbines. In addition to transportation bottlenecks caused to the ice, natural gas production in Texas and Mid-Continent declined due to well freeze-offs.

Effect on Prices

The upshot of these developments was skyrocketing of power prices. All regions in the state boasted power prices that were above $9,000 MWH, an increase of 10,000 percent over the pre-storm price of $50 MWH. To be sure, the surge in power prices is not a novel development in Texas’s electricity markets. The state generally experiences similar price surges during its hot summers when customer switch on their air conditioners at full blast.

However, those increases are only for a few hours at most, writes Joshua Rhodes, energy researcher at UT-Austin, and not for entire days. According to him, the current price increases are not a result of scarcity pricing, which is what happens when reserves are unable to meet current demand. As competition for scarce reserves of natural gas heats up in the coming days, scarcity pricing will kick in and push power prices even higher, writes Rhodes. The result of these developments might be some substantial changes in grid and natural gas operations and pricing. “We are a state defined by our hot summers, but we need to think more about winter,” writes Rhodes.