Key wholesale power prices in Texas increased during 2017 — an upward surge largely driven by rising natural gas prices.

Average demand for power in the ERCOT market also increased in 2017. However, peak-hour demand fell by 2.2 percent from the all-time record set during 2016.

These findings and more were included in a recent report by the independent monitor of ERCOT’s wholesale electricity markets.  ERCOT, or the Electric Reliability Council of Texas, is the organization that oversees the state’s main power grid.

“Overall, the ERCOT wholesale market performed competitively in 2017,” Independent Market Monitor Beth Garza concluded in her report. “Market conditions were rarely tight … planning reserves were above the minimum target and shortages were again rare in 2017.”

Key findings of the “2017 State of the Market Report For The ERCOT Electricity Markets” include:

  • Higher natural gas prices led to higher energy prices during 2017. The ERCOT-wide average real-time energy price was $28.25 per megawatt hour in 2017, which was a 14.7% increase from 2016 prices.
  • Market conditions were rarely tight and real-time prices never exceeded $3,000 per MWh in 2017. Real-time prices exceeded $1,000 per MWh for only 3.5 hours cumulatively for the year.
  • The peak-hour demand in ERCOT — that is, the highest demand on the ERCOT system during any given moment — was 69,512 megawatts in 2017. That’s a 2.2% decrease from the record of 71,110 MW set on August 11, 2017. However, average demand increased 1.9% in 2017.
  • The total congestion costs in the real-time market increased 95% in 2017, totaling $967 million for the year. Congestion costs represent the extra expense for moving power during periods when transmission lines approach their maximum capacity. The substantial increase was driven by continued limitations on export capacity from the Panhandle, planned outages associated with construction of a major transmission project to serve Houston and unusual operating conditions in the aftermath of Hurricane Harvey.
  • Net revenues to generators in 2017 were less than the estimated amounts necessary to support new investment in ground-up generation plant construction. However, this was not a surprise given that power shortages that can drive up prices were rare.
  • Going forward, a wholesale power price adder (known as the “Operating Reserve Demand Curve”) and a relatively high offer cap for energy traded in the ERCOT market should increase net revenues to generators when power shortages become more frequent. In theory, such added revenues should support new investment in power plants.
  • While the potential for generators to exercise market power continued to be a concern,  the IMM found “extremely low” levels of potential withholding of power from the market — a strategy to artificially drive up wholesale power prices.

Although the IMM report concluded that the market performed competitively during 2017, it nonetheless included a number of recommended system improvements — including creating a system to pay generators that affect transmission constraints, and creating a system for improved real-time operations.

You can read the full report here.

— R.A. Dyer