(Bloomberg) – It may be time to start building power plants in Texas again.
State generators killed this week when unreliable heat sent skyrocketing electricity prices to unprecedented levels, and briefly blew past $ 9,000 per megawatt sky-high ceiling. It placed producers more than three-quarters of the way toward profits that the state's power market surveyor says could affect a power expansion. And the region is only halfway into the cooling season.
"We need such days" to demonstrate that the state is ripe for new plants, said Scott Burger, an energy scientist at the Massachusetts Institute of Technology, in an interview.
An expansion would provide a dramatic turnaround in the Lone Star State and stand in stark contrast to the generation across the country. The U.S. has become so preoccupied with cheap natural gas and renewable power resources in recent years that electricity prices have in some places fallen below zero. This surplus supply has forced massive, aging coal power plants to retire, leaving a void that wind farms were expected to make up more than Texas.
However, Texas is facing record high demand for electricity, especially in the west where power-hungry ski machines are looking for oil and gas. And winds weren't strong enough to save the region earlier this week when Dallas baked in 103-degree Fahrenheit (39-degree Celsius) weather. Turbine generation has stopped for four days.
"I like renewable energy and have a lot of wind in the mix," said Campbell Faulkner, chief data analyst for commodity broker OTC Global Holdings. But to keep the system up and running, he said, Texas needs other power generation resources.
The last gas-fired power plant in use in the region was actually an old one that NRG Energy Inc. resurfaced in May to make money from the gains in power demand. Meanwhile, in the last six months of 2018, three gas-powered projects and five wind projects were canceled. Another 2,485 megawatts of gas, wind and solar projects were delayed, according to grid operator Electric Reliability Council of Texas.
Faulkner sees this week's price rises as a wake-up call for Texas, one that could bolster the case for a so-called capacity market where power generators are being paid to guarantee future supplies. "They will have to either switch to a capacity market style, or you will see some weird things happen in the summertime," he said.
Houston remains under a heat advisory through 6 p.m. Wednesday, but the high probably won't exceed 100 degrees, according to the National Weather Service. Electricity consumption is projected to peak today at around 72,000 megawatts, Ercot said. That is below the record set at 74,531 megawatts on Monday.
On Monday, wholesale power jumped 36,000% to an average of $ 6,537.45 a megawatt hour across the Texas grid. It rose over 49,000% on Tuesday to hit the $ 9,000 price limit set by Ercot to avoid the raffle price in extreme circumstances. Other markets also cycled that wave. Futures prices for power next July and August also jumped to a five-month high, with the daily price of Ercot North falling to a record $ 1400 per megawatt hour on Tuesday at the Intercontinental Exchange.
The network operator warned of power shortages on Tuesday. For the first time since January 2014, it declared a state of energy, and urged all power plants to ramp up and asked customers to save. At one point on Tuesday afternoon, the region's power reserves had fallen to a record 2,121 megawatts, less than 3% of total system demand.
One measure generators use to determine whether a new plant would be profitable jumped 51% this week to $ 63,051 per megawatt-year, shy of the $ 80,000 that Beth Garza, director of independent market surveillance for Ercot, said it is necessary at the turn of the year to attract generation.
as it may be, Garza said in an interview Wednesday. "Developers Should Look at This Market."
(Updates with comment from Market Monitor in the 12th paragraph and updates the figures in the second and fourth paragraphs)
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