Warmer temperatures in Texas in May are expected to set new record highs for energy use, sending electricity prices soaring.
The state’s grid operator, the Electric Reliability Council of Texas (ERCOT), forecast demand to jump from 57,486 megawatts on Friday to 71,893 MW on Monday, 72,725 MW on Tuesday and 74,346 MW on May 24. in accordance with Reuters.
Demand this coming week could beat May’s current record of 71,645 MW set in 2022, but still lag behind the all-time high of 85,508 MW set on August 10, 2023.
That’s because weather forecasts for major cities like Houston and Dallas show temperatures in the 90s above seasonal norms, meaning more Texans will be cranking up their air conditioners.
Expectations of a recent surge in demand have driven up power prices in the spot market, with next-day prices at ERCOT’s north node soaring to $120 per megawatt-hour MW on Friday from $40 on Thursday, according to LSEG pricing data cited Reuters.
And by about an hour on Friday, day-ahead prices on ERCOT’s website jumped to $688 per MWh, representing an increase of more than 1,600% from the previous day.
The Texas electricity market is deregulated and sits on its own grid. But the actual price consumers pay depends on the type of contract they have with their supplier. And from February 2021, energy suppliers are prohibited from fully passing on wholesale electricity prices to their residential customers.
Severe heat waves in recent years have shattered electricity demand records, leading to wild and sudden fluctuations in spot prices. In September, Electricity prices in Texas increased by 20,000%.
Meanwhile, Texas has seen an influx of residents since the pandemic as people leave states like California and New York where the cost of living is higher, meaning more customers are coming online.
Texas has also become a hotbed for bitcoin mining, driving up demand for electricity as the state’s deregulated electricity market and abundance of cheap natural gas become attractive to the energy-hungry sector. The proliferation of data centers and the development of artificial intelligence technologies have also increased demand.