Why are Texas Electricity Prices So High?

In 2022, we had some of the highest electricity prices since deregulation. But now? Prices have come down by 30% or more vs. last year.

Here’s a recap on why prices are so high some years (and during the summer) and some strategies on how to get the best price for your home or business.

For the latest on electricity price forecast, check our article on 2023 Texas Electricity Price Trends or enter your zip code below.

Why Texas Electricity Prices are on the Rise (2022 Recap)

In the past, Texas electricity prices have been fairly predictable.

Electricity rates were always lower in the spring and fall. Summer was always the worst time to sign an electricity contract. But in Spring 2022 electricity prices have been all over the place. And these are some of the highest spring rates we have historically seen.

The graph below shows the history of a 12-month wholesale electricity contract in the Houston area. Over the past 10 years, this has averaged between $40-$60 per MWh (4-6 cents per kWh) , with some lower prices in 2015-2018. The wholesale prices are currently 2X that, hitting $83/MWh (8.3 cents per kWh) in early May 2022. As you can see from the graph, we have not had prices this high in 10 years.

This graph is the underlying cost of the 12 month electricity rate that you purchase. In addition to this cost, your retail electricity provider adds risk factors, ancillary services, overhead and their profit. Plus you also pay for delivery on top of that.

Here are four reasons why Texas electricity rates are so high right now.

1. Geopolitical Impacts

Over 40% of Texas’ electricity is generated with natural gas-fired power plants. Because of this, the wholesale price of power ties closely to natural gas. You can see how closely the two are correlated by comparing these two graphs.

We first started seeing natural gas prices increase in 2020, but prices started ramping as manufacturing processes restarted. Natural gas is increasingly a global market. With Liquified Natural Gas (LNG), gas can be transported around the world. Russia’s war against Ukraine has had an impact on natural gas prices internationally as European nations seek new sources of gas.

2. Supply Chain Issues

Investors have numerous utility-scale solar projects planned in Texas for 2022-2025. And some of those may be hampered due to supply issues. Many of these utility-scale solar panels are manufactured in China, Malaysia, the Philippines and Taiwan. If less solar and wind projects come online in Texas, that further’s our reliance on natural gas power plants.

3. Regulatory Changes

After Winter Storm Uri in February 2021, there were numerous regulatory changes. One of these changes moved the market cap of wholesale electricity markets from $9,000/MWh to $5,000/MWh. Now, one would think that is a good thing. However, this change has impacted how prices move in real time.

Real time price spikes are now more likely to occur. And these price spikes lead to higher trading values, especially for shorter term wholesale electricity contracts.

4. Weather Forecasts

We first saw the bump in electricity prices in early April. Around that time, the National Oceanic and Atmospheric Administration (NOAA) came out with its 2022 hurricane forecast projecting higher than normal storm activity. Around the same time, weather forecasts emerged predicting that this summer will be one of the hottest on record.

Because of Texas’ location on the Gulf Coast, the hurricane forecast and heat forecast drive rates higher.

You can find more information on what drives electricity prices with our article Texas Electricity Trends. But for now… what do you do if you need to shop for electricity right now when rates are high?

How to Get the Best Electricity Price When Rates are High

Consumers often ask us, when’s the best time to buy electricity? And the reality is, trying to time the electricity market is like trying to time the stock market. You go in when you have to go in. And you take your chances.

But if your contact is expiring soon and you need to shop for a new electricity plan when rates are really high right now? Here are some strategies you can pursue to get the best electricity price.

Texas Residential Electricity Shopping When Rates are High

• Stay on top of your expiration date to remember to shop. (We can help with that. Just sign up for expiration date reminders)
• Don’t take the renewal offer without shopping your options. Typically, you get a higher rate when you are renewing then when you are a new customer. Switching to a new electricity company may get you a better rate.
• Consider one of the electricity companies with a satisfaction guarantee. These companies will let you switch to a different electricity plan within your first 30-60 days. And if you still aren’t happy, you can switch away with no early termination penalty. You can sign up now, then switch to a different plan if the rates drop.
• Look at longer term electricity rates. You can get a better price on a 24 or 36 month electricity rate. However, some retailers are recommending a standard 12 month. Their rationale? “You are going to pay the highest prices ever no matter what you do. So go short term and see what happens.” The choice is yours, but our recommendation is still to go with the cheapest fixed rate, which is a longer term plan.

You can shop residential electricity rates online.

Texas Commercial Electricity Shopping When Rates are High

• Consider longer term electricity rates. Right now, the best electricity rates for business are 36-month contracts. But if that doesn’t fit your budget or planning cycle? Look for the cheapest 12 month plan you can find.
• Work with an energy broker for your commercial electricity bill that’s over $2500/month. An energy broker can help you watch for pricing opportunities.
• Shop your business electricity rates online so you can easily compare prices. Rates are changing rapidly, sometimes twice daily. By shopping online, you won’t have to get pricing refreshed when it’s time to sign your contract.

No matter what plan you pick, you will be paying the highest electricity prices ever seen in the Texas market.

The worst thing you can do? Is nothing.

Don’t let your contract go to a month to month variable rate plan. If you do? We guarantee you’ll be paying the highest rate in the market. So take your pick and decide your tolerance for bill shock!