August 2019: The Month That Broke Records

August 2019 set wholesale electricity records not just in Texas, but the whole United States. While this wasn’t the hottest summer on record, there were sustained high temperatures and humidity that wouldn’t budge. More people were running their ACs for longer periods of time, causing record levels of electricity usage for several days. Texas broke record demand on Tuesday, August 12 at 74,744 MW, which is equivalent to 74,744,000 homes – that’s 2.5x the number of people living in the state. Unfortunately for all, the grid wasn’t always able to keep up, and that led to unprecedented periods of sustained price spikes.

How unprecedented? There is a cap on wholesale electricity prices of $9/kWh, and in the whole history of the US electricity markets, the price had only hit that $9/kWh cap for a grand total of 10 minutes before this month. Between August 13-15, the price hit $9/kWh for almost six hours. This was due to a combination of low wind generation, a growing Texas population using more energy, record-high demand and an increase in capacity charges (these are adders generators can charge for producing power during periods of peak demand). The closest thing we’ve ever seen to this was back in the hot summer of 2011 when demand on the grid was at capacity for several hours. But the average prices this time around were significantly higher.

How high were prices?

The average price for wholesale electricity for the last 12 months prior to August, was 8.9¢/kWh. Sure, prices were higher the summer months of 2018 with July having the highest rate of that year at 10.6¢/kWh. But August 2019 smashed that. The average rate was 26¢/kWh.

It was really only four days that caused August to be so high:

  • Monday, August 5: 34¢/kWh
  • Monday, August 12: 59¢/kWh
  • Tuesday, August 13: $1.44/kwh
  • Thursday, August 15: $1.58/kWh

Every other day was around 12.2¢/kWh.

Responses during peak demand

Our members save 99.5% of the time just by buying wholesale electricity and doing nothing else. But the other 0.5% of the time they will need to adjust their usage to keep seeing those savings. We send emails to our members when we expect prices to be high for the following day and push notifications when they do spike. The commercial sector already has this. It’s called demand response, and it’s where ERCOT asks large industrial users to lower power during peak demand to avoid blackouts. Now with Griddy, our members can do the same.

Some of our members were able to shift usage to off-peak times. They did this by pre-cooling their homes, turning up or off their thermostat during price spikes, setting up smart-home automation, etc.

This will mean higher prices for all electricity plans and all Texans

It’s not just wholesale that will feel the impact of these high prices. Texas will be paying for these price spikes for years to come in the form of higher fixed rates going forward.

Most other providers buy electricity on the futures market months in advance. Most of the time, the wholesale price is lower than the price they bought electricity at, which means they get to pocket the difference. But when the price spikes over what they paid, then they lose money. They will then try to make up for these loses by increasing their future fixed-rate plans.

Griddy members felt the brunt of the price spikes since they get the real-time wholesale price. But if you look on PowertoChoose, you can see those high prices trickling into the fixed-rate plans.

More investment in generation is needed

One of the main reasons prices spiked so high was the very tight reserve margin. This is when there isn’t enough generation to keep up with demand. Texas hasn’t invested in new generation in the last couple of years. In fact, ERCOT took three coal plants down last year, relying on the boon in wind generation.

There’s a saying in the trading world which is: “Nothing cures high prices like high prices, nothing cures low prices like low prices.” And what that means is we’ve had really low wholesale prices for the last eight years since the spikes in 2011. When prices are consistently low for a long period of time, generators don’t have much incentive to spend a billion dollars on a new gas-fired power plant. So there wasn’t much investment in new generation. Meanwhile, the Texas population keeps growing faster than the national average, and more and more businesses are coming to Texas. But after this summer, there are a lot of people with a lot of incentive to bring a lot of new generation online as quickly as possible – just like there were after the 2011 spikes.

What Griddy plans on doing about this

This is not a normal part of the market, and should not be expected as a regular occurrence with wholesale pricing. This was a truly unprecedented, extreme event. That said, now that we’ve seen it can happen, it’s important for Griddy and our members to be prepared. 

We already have tools like the real-time price dial, price alerts and smart home automation to shift usage away from the peaks. But in the coming months, we’ll be unveiling improvements to the tools and information we provide to help members do this easily and save even more money. Stay tuned! We are hard at work to make sure our members will be more prepared and more educated for next summer.

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