“electricity Pricing Trends In 2023: Factors Affecting Your Utility Bill” – Texas electricity trends for 2023 show lower prices than 2022 and more options for short and long-term electricity contracts. Other Texas electricity trends include green energy plans going mainstream, more consumers choosing to add solar panels to their homes and the opportunity to earn rewards for reducing your usage.
This is also the year that the market will be restructured as Texas tries to ensure grid reliability. These changes will increase future electricity prices after 2023.
“electricity Pricing Trends In 2023: Factors Affecting Your Utility Bill”
We will discuss all this and more below. Are you in a hurry and just want to find your best electricity plan? Go to our recommendations to find the best electricity rates.
Short Term Energy Outlook
Texas Electricity Price Forecast 2023: Electricity prices in Texas will fall in 2023 after seeing rates peak in 2022 after deregulation begins. The decline in prices is driven by a projected drop in natural gas prices this year, plus generation from renewable resources such as wind and solar. According to the Energy Information Administration, the average residential electricity rate in 2023 will be 15.63¢ per kWh.
Before we get too deep into this, let’s define a term you’ll hear when it gets hot in Texas: reserve margin.
The ERCOT reserve margin is the difference between the amount of electric generating capacity that is available and the amount of energy demand expected in Texas. ERCOT uses the reserve margin as a planning tool to estimate additional resources or demand reductions.
This means they like 13.75% more production capacity than estimated demand. This is the “at least” limit.
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A reserve margin allows for higher-than-expected temperatures to influence demand. It also gives us a buffer in case the wind doesn’t blow and the sun doesn’t shine when it’s expected.
And it takes into account that our power generation fleet is aging in Texas, causing unplanned outages.
But most of all, the reserve margin is a signal of supply and demand for the wholesale electricity market.
ERCOT publishes three resource adequacy forecasts each year. In each report, you will receive an updated reserve margin forecast for the summer of 2023.
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The Texas ERCOT reserve margin for summer 2023 is 14.5%, based on ERCOT’s Capacity, Demand and Reserves Report dated May 3, 2023. This is slightly above ERCOT’s target reserve margin of 13.75% and down from the November 2022 forecast of 22%.
Texas’ projected summer 2023 peak supply is 97,138 megawatts (MW). The forecast summer demand forecast (usage) is 82,739 MW. This would be a new record for electricity demand in the state of Texas. The current peak demand in Texas grid history was 80,000 MW on July 20, 2022.
Here are the ERCOT reserve thresholds for 2023-2027 according to the May 2023 Capacity, Demand and Reserves Report:
ERCOT’s forecasts of Texas electricity supply and demand affect how wholesale power is traded in the open markets.
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When market expectations are positive, with plenty of supply to meet demand, prices trade at more moderate levels.
When there’s concern that supply isn’t keeping up with demand, traders get nervous. And when wholesalers get nervous, it drives up prices.
After 20+ years in the deregulated electricity business, we’ve seen this time and time again. The Self-Fulfilling Prophecy of Expecting High Prices Increases Prices in Market Trading!
The Texas Reserve Margin evaluates supply and demand forecasts in the ERCOT electricity market. A high reserve margin means that there are adequate resources to meet the demand for electricity. A high reserve margin lowers wholesale electricity prices. A low reserve margin means that we may not have enough power resources if the generation resource suddenly goes offline. Low reserve margins tend to increase wholesale electricity prices due to shortage concerns.
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The 2023 summer reserve margin in Texas indicates typical seasonality. Prices usually increase in June-August, and this year is no exception.
But the reserve margin is only one of the economic factors affecting electric rate trends in Texas. Other factors include natural gas prices and the global economy, regulatory changes and weather.
Texas electricity rates to increase in 2022. The biggest driver? The war in Ukraine and the growing globalization of natural gas trade. We have the full story in this article on Texas electricity rates in 2022.
But the short story is that electricity prices in Texas are closely related to natural gas prices because most of Texas’ electricity is generated by natural gas.
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A global market for natural gas already existed thanks to natural gas liquefaction technology for transportation. But the war in Ukraine has limited the supply of Russian natural gas to Europe. This has created market opportunities for liquefied natural gas (LNG) sellers.
Electricity prices in Texas followed the markets and reached record high prices. Last year’s electricity market posted the highest electricity prices since deregulation began in Texas. Prices peaked in August 2022 at about 19 cents per kWh in North Texas, according to the Texas Association of Electric Companies.
Currently, natural gas prices are at lows, approaching the levels we saw in 2020. But that could change soon.
The second largest US exporter of LNG, accounting for 20% of all exports, is Freeport LNG in South Texas. On June 8, 2022, an explosion at this plant took them offline, keeping more natural gas in the United States than expected. Freeport LNG will return online to export natural gas in March 2023. Analysts predict that this will bring US natural gas prices back up.
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>The price of electricity in Texas is a function of natural gas markets. After a mild winter and higher-than-usual storage, natural gas prices are down 50% from 2022. This results in electricity prices for 2023.
This winter’s storms hit Texas, dropping temperatures to freezing in much of the state. We experienced a massive outage as ERCOT had to shed loads to keep the Texas grid from going down.
And in some cases, the light wouldn’t turn on, it was just cold and dark for days. As a result, hundreds of people died and millions of material damages.
As a result, the Texas Legislature, ERCOT, and the Texas Public Utilities Commission issued a number of new regulations, including:
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PCM essentially pays electricity suppliers to be available to generate power during times of high demand. This will create an additional revenue stream for generators. This cost, in turn, is passed on to retail electricity providers, who must provide these services by purchasing credits on behalf of consumers.
Sean Kelly, CEO of Amperon, a data analytics company that provides energy forecasting models, points to performance mechanism credit as “one of the biggest factors that will affect electricity prices for customers” this year.
Although this will not affect your direct electricity contract, it is a cost that will be passed on to consumers as a change in regulatory requirements.
Eric Bratcher, chief risk officer at energy consulting firm Energyby5, confirms this, but says: “The impact on supply contracts probably depends on your customer class assignment.”
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For small commercial and residential customers, any increased cost due to PCM cannot be transferred to your existing contract. But Bratcher advises large commercial customers to check their contracts.
“The contract modification sections address the ability of REPs to pass any PCM-related costs on to customers,” says Bratcher.
Whether the PCM will be implemented will be decided by the Texas Legislature in late May 2023.
>Retail electricity suppliers will price electricity plans to include the expected value of the performance mechanism credit.
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The Performance Credit Mechanism (PCM) is a new market tool approved by the Texas Public Utilities Commission in January 2023 to enhance grid system reliability. Electricity generators will receive credits by being available to produce additional power during peak demand hours. Retail electricity providers must purchase these credits on behalf of their customers. The goal is to attract new generation assets. PCM will take about 2 years to implement and will affect electricity prices in 2025.
Capacity is a structure used in some electricity markets to charge generation assets to be able to meet peak electricity demand. Most commonly used in the Northeast and Mid-Atlantic electricity markets, the capacity pays for some of the fixed costs of building and maintaining power plants. These costs are passed on to customers based on their annual peak usage. The Texas performance credit mechanism has been called by some observers “Texas’ version of the capacity market.” The big difference is that the costs are not directly distributed to consumers, but are included in the total cost of electricity.
The costs of setting up ERCOT PCM will be passed on to consumers through higher electricity prices. E-retail providers must purchase PCM credits to cover their customers’ usage. These costs will inevitably seep into consumers’ electricity bills. For homeowners, your bill will increase by about $2 for every $100 you spend on electricity once costs start factoring into the price.
On a typical day, 20% of the ERCOT load is residential electricity. But on a scorching hot day? Or a super cold day? Residential electricity will jump to nearly 50% of the total ERCOT load.
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That’s because Texas homes
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