Texas electricity rates in 2019 were relatively flat compared to the prior year. And if you were in a fixed rate contract throughout 2019, you had a secure price. But those who were on a variable rate or a wholesale index rate (i.e. Griddy Energy) had their rate explode in mid August.
So what will happen in 2020? It all depends. But early indications are that market forces are driving up retail energy prices in the short term, and that long-term contracts might be the way to go this year.
In this article we cover:
- Texas Electricity Reserve Margin Projections for 2020
- How Reserve Margins Impact Electricity Rates
- Why Long-Term Contracts May be Your Best Bet
Reserve Margin Forecast Summer 2020
Before we get too deep into this, let’s define a term that you will hear a lot about in the ERCOT Texas electricity market — Reserve Margin.
Reserve Margin is the difference between the amount of power generation capacity that is available, versus the amount of power demand that is expected.
To ensure system reliability, ERCOT, the Electricity Reliability Council of Texas, likes to maintain a 13.7% reserve margin, or 13.7% more generation capacity than they think will be needed. This allows for the impact of hotter than expected temperatures, which would spike demand.
ERCOT’s first projection for 2020 summer reserve margin is 10.6%. That’s lower than the target reserve margin, but 2% higher than the 8.6% reserve margin that we had going into 2019 peak demand season.
As ERCOT CEO Bill Magness said, “(Last year) ERCOT maintained system reliability through record-setting electric demand and high temperatures this summer. We anticipate there will continue to be sufficient generation to meet Texas’ growing power needs.”
And that’s what ERCOT focuses on: reliability.
In 2019, wholesale power prices exploded in mid-August, during a period of extreme heat. But reliability was not compromised. The lights stayed on.
How Do Reserve Margin Forecasts Impact TX Electricity Prices?
But while ERCOT takes care of reliability, the wholesale energy buyers at Retail Electricity Providers (REPs) in Texas focus on price.
And a reserve margin of just 10.6% probably has them feeling anxious.
That’s because they know that the blow-out in August 2019 pricing could be a repeat in the summer of 2020.
Last year, reserves were at 8% going in to the summer. And then we had a heat wave in August. ERCOT set a new all-time record peak usage of 74,666 MWh on August 12, 2019. Wholesale power prices shot up to the $9,000/MWh market cap multiple times between August 12 and August 16.
As with any commodity, expectations of shortages drive prices higher. And that’s why every REP supply desk watches the ERCOT reserve margin forecast. The reserve margin forecast is a signal of “what could be” this summer.
After last year’s market blowout and the low reserve margin, August 2020 ERCOT power is trading at a high price. This is driving up the overall cost of a 12-month electricity contract.
How Does Weather Impact TX Electric Prices?
The reserve margin measures two things — it’s how much power will we have, and how much power will we need? ERCOT’s projections of supply and demand take various weather scenarios into account.
Power usage for businesses is fairly predictable, and generally not very sensitive to weather. But for residential customers, approximately 50% of the electricity bill is heating and cooling. That means when it gets hot, residential electricity usage spikes.
The chart below shows the impact that residential electricity has on the total electricity load in Texas. On a moderate day, residential electricity is only 25% of the total ERCOT load. But on a scorching hot day? That jumps to almost 50% of the total usage.
The early projections of reserve margin assume typical weather patterns. But what if we have a pop of heat like last August?
Weather and it’s unknown nature bring added risk into the equation for summer 2020.
Why Long-Term Contacts Offer the Best Texas Electricity Rates
Beyond 2020, the supply forecast looks excellent.
Based on new power generation resources that are coming online, the reserve margin for 2021 and 2022 will be well above the targeted 13.7%. It’s projected to be 18.2% in 2021 and 17.3% in 2022.
As we get closer to the summer weather forecast and resource adequacy report, prices may change for 2020 contracts.
But for now, the 2021 and 2022 reserve margins mean:
- REPs are able to secure wholesale contracts for 2021 and 2022 power at a lower price than 2020 power.
- REPs are creating “odd term” products like 16 and 18 month terms, for consumers expiring in 2020. Why? This lets them blend in less expensive winter and spring 2021 months, lowering the effective rate.
- Long term contracts (24 and 36 month) are currently priced lower than short term contracts (12 months or less).
- We would expect contracts that start in September 2020 (after the summer) to be less expensive.
Shop Best Residential Electricity Rates in Texas
Renewable Energy Becomes #2 Energy Generation Source in Texas
In 2019, wind surpassed Coal as the number two generation resource in Texas, generating almost 24% of all power used.
And, Texas is expected to double its solar electricity output in 2020, with investment in utility-scale solar farms. One huge benefit of solar energy over wind? It produces the most power on hot, sunny days, when demand is highest.
Investment in solar power and wind power is partially due to the declining costs of these installations. Plus, utility-scale battery storage has been declining in price. This allows wind and solar generators to generate and store power, then sell it onto the grid when the pricing hits a certain level.
Why is this important? When electricity is scarce, older natural gas fired peaker plants have to come online. With battery storage, ERCOT will have more resources to call on. That will keep prices from spiking as they have in previous years.
Trending Texas Residential Electricity Plans
REPs continue to offer a variety of electricity plans to residential consumers in Texas. Among the most popular are the plans you will see advertised on mass media and online:
- Free Nights or Free Weekends – A percentage of your electricity is free during certain off-peak times of the day or days of the week. The Champion Energy Free Nights 12 plan or Pulse Power Free Nights 24 plan offer the best value.
- Free 7 Days – These plans offer free electricity on your highest usage days. The plans are offered by both Reliant Energy and TXU Energy.
- Renewable Energy Plans – New market entrant Chariot Energy offers 100% solar energy plans at competitive rates. Their solar energy RECs are 100% Texas-sourced, in part from large solar farms that their parent company owns.
Many REPs also offer tiered rate plans or flat fee plans. These plans are structured to show a low price at a specific usage level, like 1000 or 2000 kWh. However, consumers who use more or less power may pay a significantly higher price per kWh.
To help consumers understand their best option, ElectricityPlans has introduced the “Calculate My Bill” feature.
Simply enter your electricity usage when shopping. Rates will automatically recalculate and re-sort based on your usage.
What to Do If Your Texas Electricity Contract Expires in 2020
Your best bet for Texas electricity for your home is to lock in a fixed rate plan to protect against risky energy prices.
- Long term contracts offer the best value.
- Look for odd-term plans (such as 16 or 18 month) rather than the default 12 month term that many consumers shop for.
- If your contract expires in June or July, lock in your contract rate in late spring. You can lock in your new price up to 60 days before your contract expiration date.
- Use the Calculate My Bill feature on ElectricityPlans.com to shop for an electricity plan gives the best value at your specific usage levels.
How to Get the Best Rate on Business Electricity
As with residential electricity, business owners should look toward locking in longer term rates for business electricity.
Long terms plans are much more affordably priced. They also allow you to have budget certainty.
Residential customers must wait until they are within 60 days of their expiration date to renew their contract. Commercial customers can often shop much further out for their new contract, as much as a year in advance. This lets commercial customers more easily avoid shopping during peak pricing months of June – September.
Texas business owners also need to be aware of curtailing their consumption on the hottest days of the summer. That can help to keep your demand charges low.
If you spend over $2,000 a month on electricity, or if your contract expires more than 30 days out, call us to shop your options — 844-244-5559.
Small commercial customers with an immediate need can shop business electricity rates directly on our web site.
Next Checkpoints for Texas Electricity Rates Projection 2020:
ERCOT will release two more reports on their projections for reserve margin.
- March 2020: ERCOT will release its preliminary Seasonal Assessment of Resource Adequacy for the ERCOT Region (SARA). Watch for this the first week of March.
- May 2020: ERCOT will release its final Seasonal Assessment of Resource Adequacy for the ERCOT Region (SARA). This report will take into account weather forecasts for the summer months.