Texas Electricity Trends for 2023

Texas electricity trends for 2023 show lower prices than 2022 and more options for short and long term electricity contracts. Other trends in Texas electricity include green energy plans going mainstream, more consumers choosing to add solar panels to their homes, and opportunities to get rewarded for cutting your usage.

This is also the year that market restructuring will occur, as Texas looks to ensure grid reliability. Those changes will drive up future electricity prices beyond 2023.

We’ll review all that and more below. If you’re in a hurry and just want to find your best electricity plan? Jump right to our recommendations to find the best electricity rates.

Texas Electricity Price Forecast 2023: Electricity prices will fall in Texas in 2023 after seeing 2022 rates peak at their highest level since deregulation started. The decline in pricing is due to a forecast drop in natural gas prices this year, plus increased generation from renewable resource like wind and solar. According to the Energy Information Administration, the average residential electricity rate in 2023 will be 15.63¢ per kWh.

Section 1: Economics of Texas Electricity

What is “ERCOT Reserve Margin?”

Before we get too deep into this, let’s define a term that you will hear whenever it gets hot in Texas: Reserve Margin.

To ensure system reliability, ERCOT, the Electricity Reliability Council of Texas, likes to maintain a 13.75% reserve margin.

That means they like to have 13.75% more generation capacity than projected demand. It’s the “just in case” margin.

The reserve margin allows for the impact of hotter than expected temperatures, which would spike demand. It also gives us a buffer in case the wind doesn’t blow and the sun doesn’t shine when expected.

And it takes into account that our electricity generation fleet is aging in Texas, resulting in unscheduled outages.

But most of all, reserve margin is a signal to the wholesale electricity market regarding supply and demand.

What is the ERCOT Reserve Margin for 2023?

ERCOT releases three resource adequacy projections each year. In each report, you’ll get an updated reserve margin projection for summer 2023.

• November: ERCOT releases its Capacity, Demand and Reserves (CDR) report with initial projections for summer of the following year.
• March: ERCOT releases its preliminary Seasonal Assessment of Resource Adequacy (SARA) for the ERCOT Region. They use historical projections for the summer weather.
• May: ERCOT releases its final SARA report for summer 2023 and CDR for summer 2023. These near-term forecasts take into account the forecasts for summer heat, humidity and rain.

Here are the ERCOT reserve margins for 2023-2027 according to the May 2023 Capacity, Demand and Reserves Report:

2023	2024	2025	2026	2027
14.8%	33.9%	44.2%	44.1%	42%

Source: ERCOT Capacity, Demand and Reserves Report, May 3, 2023

How Do Reserve Margin Forecasts Impact TX Electricity Prices?

ERCOT’s projections of Texas electricity supply and demand have an impact on how wholesale energy gets traded on the open markets.

When market expectations are positive, with plenty of supply to meet demand, prices trade at a more moderate level.

When there’s concern about supply not meeting demand, traders get nervous. And, when wholesale traders get nervous, that drives up prices.

After 20+ years in the deregulated electricity business, we’ve seen it over and over. The self-fulfilling prophecy of the expectation of high prices drives prices higher in market trading!

Right now the reserve margin forecast for summer 2023 is giving a positive signal to the market.

>Reserve margins for summer 2023 in Texas point toward typical seasonality. Prices normally increase June-August and this year is no exception.

But reserve margins are just one of the economic factors that impact electricity rate trends in Texas. The other factors include natural gas prices and global economics, regulatory changes and weather.

How Global Economics Impact your Texas Electricity Bill

Texas electricity rates increased in 2022. The biggest driver? The War in Ukraine and the increasing globalization of natural gas trading. We have a full story in this article on Texas electricity rates in 2022.

But the short story is, electricity prices in Texas are closely tied to natural gas prices, since the majority of Texas power is generated by natural gas.

The global market for natural gas already existed, thanks to technology to liquify natural gas for transport. But war in Ukraine constrained Russian natural gas supply going into Europe. That created market opportunities for sellers of liquified natural gas (LNG).

US natural gas prices quickly reacted to increased global demand. Prices soared to 3X prior year averages.

And electricity prices in Texas followed the markets, hitting record high prices. Last year’s electricity market produced some of the highest electricity prices since deregulation began in Texas. According to data from the Association of Electric Companies of Texas, prices peaked in August 2022 around 19 cents per kWh in North Texas.

Currently, natural gas prices are at a low point, nearing levels we saw in 2020. But that may change soon.

The 2nd largest US exporter of LNG, making up 20% of all exports, is Freeport LNG in south Texas. On June 8, 2022 an explosion at that plant took them offline, keeping more natural gas in the US than expected. Freeport LNG will be back online exporting natural gas in March 2023. Analysts expect this will drive US natural gas prices back upward.

>Electricity pricing in Texas is a function of natural gas markets. Following a mild winter and higher than usual storage, natural gas prices are down 50% from 2022. That is driving down electricity prices for 2023.

How Regulatory Changes Will Impact Electricity Price Trends in Texas

Winter Storm Uri in 2021 changed everything in Texas electricity.

This winter storm slammed into Texas, dropping temperatures below freezing for much of the state. We experienced massive blackouts because ERCOT had to shed load to keep the Texas grid from collapsing.

And in some cases, the blackouts weren’t rolling, it was just cold and dark for days. The result was hundreds of deaths and millions in property damage.

As a result, the Texas legislature, ERCOT and the Public Utility Commission of Texas issued a number of new regulations including:

• Weatherization of power plants
• Lower market rate caps on wholesale electricity market (dropping the market pricing cap from $9000/MWh to $5000 per MWh)
• Increased purchasing requirements for ancillary services.
• Creation of a new market mechanism to incentivize construction of new power plants in the market, called the Performance Mechanism Credit (PCM)

What is the Performance Mechanism Credit?

The PCM will essentially pay power providers to be available to generate power during times of high demand. This will create an extra revenue stream to generators. That cost, in turn, will be passed on to retail electricity providers, who must secure these services by purchasing credits on behalf of customers.

CEO Sean Kelly of Amperon, a data analytics company that provides energy forecasting models, points to the Performance Mechanism Credit as “one of the biggest things that will impact electricity prices for consumers” this year.

While it won’t impact your immediate electricity contract, it’s a cost that will be passed along to consumers as a change in regulatory requirements.

Eric Bratcher, Chief Risk Officer of Energyby5, an energy consulting firm, confirms this, but says, “The impact on supply contracts is probably dependent on your customer class assignment.”

For small commercial and residential customers, any cost increases due to PCM can’t be passed through on your existing contract. But Bratcher advises large commercial customers to check their contracts.

“The change-in-law sections of the contract will address the REPs ability to pass any costs associated with PCM on to customers,” according to Bratcher.

Whether or not the PCM is implemented will be decided by the Texas Legislature by the end of May 2023.

>Retail Electricity Providers will price their electricity plans to include the expected cost of the Performance Mechanism Credit.

FAQs About the ERCOT Performance Credit Mechanism

How Does Weather Impact TX Electric Prices?

The big wild card in Texas electricity prices for the home? It’s the weather.

On a normal day, 20% of ERCOT load is residential electricity. But on a scorching hot day? Or a super cold day? Residential electricity jumps to almost 50% of the total ERCOT load.

That’s because homes in Texas use more than half of their electricity to heat or cool their homes. When it gets hot in Texas, everyone turns on their HVAC system to full blast.

Retailers and supply analysts can only buy power in blocks. They can never schedule to have 100% of what they need. They buy the rest on the open wholesale markets. When it’s hot and demand spikes higher than expected? They often get caught without enough power to meet their customer’s demand.

Retailers that sell electricity to residential consumers have a riskier load profile. They can plan and plan and plan. But if there’s a heat wave or a cold front, they get caught without enough supply and have to buy expensive power on the open market.

>Weather risk results in higher risk factors being built into residential electricity prices. That pushes prices higher.

Texas Electricity is Becoming Green

As we said above, the price of electricity in Texas has long been driven by the price of natural gas. But that’s changing as more wind and solar power comes online.

Here’s ERCOT’s projection for the 2023 fuel mix.

For the first time ever, wind power will produce as much of our power as natural gas does. And an area to watch? Solar power in Texas. Utility scale solar farms are in the planning stages across the state. That will help to bring summer electricity prices down in the future.

>Increasing solar and wind generation will have a downward effect on prices.

Short Term Electricity Contracts Become Affordable Again

If you shopped for electricity in 2022, you got a shock. Prices were sky high, and the best options were always long term contracts of 24 or 36 months. Here’s what wholesale electricity markets looked like in April of 2022. This chart shows the price that retail electricity providers had to pay per 1 MWh (or 1000 kWh’s) for each contract month when buying power for their customers.

As you can see, last year the price for 2022 and 2023 power was significantly more expensive than power in 2024 or 2025. Long term contracts, which blended together expensive and cheaper power, gave you a better rate.

Compare that to this year’s electricity market wholesale chart. Notice how flat the trend line is?

That means that short term 12 month contracts, and longer term 24-36 month contracts, are now priced at parity. You no longer have to go long term to get a good price for your electricity.

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Section 2: Residential Texas Electricity Rates 2023

Residential customers in Texas can shop to get the best electricity rate for their home. In 2023, the most convenient option will be affordable 24 and 36 month electricity plans. But with 12 month electricity plans becoming more affordable, now’s your chance to try that new electricity provider you’ve been considering.

And don’t forget, as with a lot of your online shopping, look for an electricity discount with promo code get the best price.

>New to shopping? Use our guide on how to shop for Texas electricity.

Most Popular Electricity Plans – Short Term Texas Electricity Rates

In 2022, it was all about long term electricity plans, to get the best value. In 2023, we expect 12-month contracts to become the new normal once again.

The 12 month electricity contract term will be the most popular trending electricity term for Texas consumers in 2023.

Why? Our guess is that people who are switching want to check out a new company before they over commit. If that’s you, take a look at our list of electricity companies with a satisfaction guarantee.

Others like to match the term of their electricity contract with their lease agreement. Just know that you don’t have to do that. You can sign up for a cheap longer term contract, then cancel with no penalty with proof of your move.

Short term electricity plans that are 3 to 6 months can offer great rates during the off-season. If you buy a short term plan like that in the spring or winter, just be aware of when your contract expires. If your short term contract ends in the summer, you could be facing dramatically higher rates when you renew.

The chart below shows some of the cheapest short term electricity rates in the Oncor / Dallas area of Texas. Enter your zip code to see rates in your area.

Convenience – Long Term Texas Electricity Rates

Long term electricity rates continue to offer an excellent value for Texas consumers. That’s because retail electricity providers can buy power in the future for less than they can buy it right now. Long term contracts give you convenience, as you don’t have to shop every year.

If you are avoiding a long term contract because you may move in the next year? Don’t worry about it. Texas law lets you cancel your contract with no penalty if you provide proof of your change of address.

Another concern with long term contracts is the “what if” factor.

What if prices go down? If prices go down while you’re in a long term contract, you can still switch to a lower rate. You’re never stuck in a contract with your electricity provider. Just make sure to follow our step by step process to see if it’s worth it to pay the early termination penalty.

Here are the cheapest long term electricity rates for the Oncor service area. To see rates near you, just enter your zip code below.

Green – Renewable Energy Texas Electricity Rates

In 2023, approximately 40% of all power in Texas will come from renewable energy sources. The increasing amount of renewable resources in the mix not only makes our whole system green. It also makes green energy a more affordable option for 100% renewable.

Several electricity providers offer 100% renewable energy as their default plan, including Energy Texas, Shell Energy and Gexa Energy. When you choose a green energy plan, your electricity is backed by Renewable Energy Certificates (RECs).

Here are just some of the options for choosing a green energy plan in Texas:

• If you want to reduce your carbon footprint, you can purchase a 100% renewable electricity plan, or an electricity plan from Texas wind or Texas solar.
• Have solar panels? You’ll want a solar buyback plan to sell your excess power back to the grid.
• Have an EV? Select an EV charging plan.

The chart below shows some of the cheapest green energy electricity rates in the Oncor / Dallas area of Texas. Enter your zip code to see rates in your area.

Innovation – Solar Buyback & Reduce Your Use Rewards Plans

The Texas electricity market is changing, and so are the types of plans being offered.

We see a strong trend toward rooftop solar panels for homeowners. The federal tax credit for solar panels has been extended through 2030, bringing the cost down. That makes solar more affordable. That, coupled with higher electricity prices, gives it a shorter payback on your investment.

But to make the most of your solar panels, you need to find a Solar Buyback Electricity Plan. These plans allow you to sell back your excess solar power to the grid, in exchange for bill credits. But it’s complicated, and we find many consumers have been over-sold on how much money they can make on net metering. If that sounds like you, check our information on solar buyback programs in Texas.

The other big opportunity in Texas is what we call Reduce Your Use Electricity Plans. These are providers that will pay you to conserve electricity during times of high demand. Programs like these, called demand response programs, help keep the ERCOT grid balanced.

Best Electricity Plan for Most Texans – Fixed Rate

We’ve been in this business since the start of Texas deregulation. And we continue to say, the best electricity plan for most Texans is a fixed rate electricity plan with basic electricity (no gimmicks).

We recommend a fixed rate electricity plan because:

• Fixed rates are easy to understand. You’ll pay the same fixed rate per kWh for the term of your contract.
• There are no tiered rates, bill credits, minimum or maximum usage thresholds to watch for.
• Set it and forget it (until your contract expiration).

There are 2 other types of plans that continue to be popular with consumers.

If you know your electricity usage by month, you may be able to get a cheaper rate by shopping the bill credit or tiered rate electricity plans. You can use our electricity bill calculator and select “Bill Credit/Tiered Rates/ Flat Fee” when looking at plans. You’ll be able to see your estimated bill and price per kWh each month, with each plan.

Free electricity plans are still some of the most popular electricity plans, especially free nights electricity. If you are willing to shift some of your electricity usage to the evening hours, these can be a good deal.

When’s the Best Time to Shop for Electricity in Texas?

We are often asked, when should I shop for electricity in Texas?

The best pricing opportunities are in the shoulder months, for contracts that expire between October and May. Contracts that expire in June through September are exposed to the pricing risk of summer weather.

But you can’t always pick your contract end date. It’s usually tied to whenever you first shopped for electricity, or perhaps when you moved into your most recent home or apartment.

When you are shopping for a new plan, you can choose your switch date with the new provider. Pick a switch date 7-10 days ahead of your expiration date of your current contract. That way you avoid any early termination fee with your current provider.

Or, pick an electricity company that will pay your early termination fee with your current company. You can switch immediately without worrying about your contract expiration date. Rhythm will reimburse your contract early termination fee when you switch, up to $150.  

Whatever you do, don’t forget to shop. In fact, sign up for our electricity plan expiration reminder service right now while you’re thinking of it. We’ll remind you to come back and shop for electricity.

Section 3: Commercial Texas Electricity Rates 2023

Commercial electricity is showing the same pattern as residential electricity in Texas. Long term electricity plans offer slightly lower rates. But if you want to tie your electricity contract to your budget planning cycle, 12 month contracts are now affordable again.

Texas Electricity Rates for Commercial Energy in 2023

Monitoring your commercial electricity rate is important to keep your overhead low.

Just remember, unlike residential customers, you don’t have to wait for the 60-day window to shop for your electricity. That means business owners can compare electricity rates 6+ months in the future.

For example, if you have a contract expiring in the summer months, you don’t have to wait until the summer to shop. You can shop in February and March, when prices are lower, and lock in your future dated contract rate.

If you spend less than $2500 a month on your electricity bill, you can shop business electricity rates online to compare commercial electricity prices. You can complete the entire contracting process online in less than 10 minutes.

If you spend more than that, call us for custom commercial electricity price quotes — 844-244-5559.

How to Get the Best Rates for Your Business in Texas

Working with an electricity broker can help you find the best rates. Here are some other ways to get the best electricity rates for your business:

• Shop 4-6 months in advance of your contract expiration date.
• Pay attention to your usage on the hottest days of the summer. That can help to keep your demand charges low.
• If you are a new business, work with a business electricity expert to get help establishing your service without a deposit.
• If you are moving to a new location, work with a business electricity expert to get help with the city permit process.