Texas power prices surge to US$9,000 as searing heat continues

[NEW YORK] Electricity prices in Texas soared to US$9,000 a megawatt hour as the state's grid operator called for energy conservation amid extreme heat scorching the region.

With temperatures in Dallas approaching 100 degrees Fahrenheit (38 Celsius), the Electric Reliability Council of Texas(Ercot) warned that it was increasingly likely the electricity system could experience shortages -- a prospect that may prompt regulators to ease environmental restrictions and allow generators to run at maximum capacity.

The region's power-supply cushion fell at 3:19 p.m. local time to a record-low 2,121 megawatts, less than 3 per cent of total demand on the system. Shortly after, the grid operator known as Ercot issued a statement asking for voluntary energy conservation. There were no power outages at that time.

Wholesale electricity, meanwhile, hit the US$9,000 per megawatt-hour cap set by Ercot to limit runaway prices during shortages. On Monday, prices jumped 36,000per cent to average as much as US$6,537.45 a megawatt-hour across the Texas power grid.

"I think we will have our record-highest settle today," David Hoy, an electricity trader at Dynasty Power, said in an interview.

And the worst of the heat has yet to come. Temperatures were forecast to reach 103 degrees in Dallas Tuesday afternoon before cooling off. The mix of heat and humidity will make temperatures feel closer to 112. The National Weather Service has issued a heat advisory until 8 p.m. local time.

The unprecedented market rally highlights how volatile the Texas power market has become as coal-fired power plants, which have seen their profits squeezed by cheap natural gas and renewable energy resources, continue to close. Texas's grid operator has been warning for months that plant retirements and increasing electricity demand has left it with slim supply margins.

"We are seeing the coal fleet retirement hasn't been replaced with a lot of large gas plants," said Campbell Faulkner, chief data analyst for commodities broker OTC Global Holdings. "We are changing the generation mix and that is what this is caused by."

Electricity demand hit an all-time high of 74,531 megawatts as people blasted their air conditioners on Monday afternoon and was already totaling 73,405 megawatts at 2:34 p.m. local time Tuesday, according to Ercot. Demand may peak at more than 75,000 megawatts.

"Extreme heat across the Ercot region will continue to result in high loads," Ercot said in a statement. "We may set another new record today."

This week's price spikes also underscore how dependent the region's power grid has become on wind farms, which now make up about a quarter of the generation capacity in Texas. Lackluster breezes have contributed to the higher prices, Hehir said.

Wind power generation in the region has plunged for three straight days, grid data compiled by Bloomberg show.

BLOOMBERG