Texas Faces Energy Cost Increases in 2023: Thermal Outages and High Demand as Main Drivers

An in-depth analysis reveals that thermal plant outages and peak demand accounted for most of the electricity price increases in Texas in 2023, overshadowing the impact of ancillary services.

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In 2023, the Texan energy market experienced a surge in electricity costs, driven by exceptional market conditions. Contrary to what was previously suggested by the Independent Market Monitor (IMM), unplanned thermal outages and record demand played a key role in price formation, according to the latest report by Aurora Energy Research. The Electric Reliability Council of Texas (ERCOT), which manages most of the state’s power distribution, faced a particularly volatile environment. Aurora’s report highlights that the ten most expensive days in 2023 were primarily influenced by unplanned outages at thermal plants and extreme temperatures.

Frequent and unforeseen thermal plant outages significantly contributed to an increase in wholesale market costs. Over the ten days analyzed, these interruptions added approximately $5.4 billion in additional charges. Coupled with record demand, this created an excess of $8.3 billion. These figures underscore the challenges for the ERCOT network as the rapid growth of renewables shifts the state’s energy mix.

Ancillary Services: A Limited Role

The IMM had previously pointed to the role of the ERCOT Contingency Reserve Service (ECRS), an ancillary service introduced to stabilize grid frequency and limit imbalances during periods of stress. In May 2024, an IMM assessment concluded that the procurement of this service had contributed to a $12 billion increase in costs between June and December 2023. However, Aurora’s report nuances these findings. When taking into account high load and thermal outages, the excess cost attributed to ECRS falls to a range of $100 million to $1.3 billion.

Aurora’s analysis shows that the impact of ECRS was largely overestimated by the IMM. Rather than significantly increasing costs, this service helped to prevent major disruptions to the grid during periods of high demand. Price volatility is more directly linked to unforeseen thermal outages, highlighting the need for more targeted policies to strengthen the stability of the Texan network.

Demand Growth as a Key Driver

Electricity demand in Texas has continued to grow at a steady pace, surpassing other regions of the United States. Between 2020 and 2023, ERCOT observed more frequent load peaks, especially during the summer, exacerbated by record temperatures. Aurora’s report demonstrates that if load levels had remained consistent with ERCOT’s peak forecast of 82.7 GW, costs would have been reduced by $8.3 billion over the ten analyzed days.

This rapid demand growth represents a significant challenge for the network. To maintain system stability, ERCOT had to rely on sporadically high prices, encouraging producers to increase their generation capacity. However, this strategy remains risky, as it depends on the operators’ ability to anticipate demand shifts and avoid unforeseen service interruptions.

Upcoming Reforms and Perspectives

The situation in Texas raises important questions for regulators. Aurora’s study highlights the need for structural reforms to reinforce grid resilience. While ancillary services can contribute to stabilizing the system during periods of tension, data shows that the effectiveness of current policies is limited in the face of growing demand and repeated thermal outages.

Ongoing discussions around Texas market reform will need to consider these factors to avoid overburdening consumers while maintaining a coherent price signal for investors. Adjustments in ancillary service procurement and strengthening thermal capacity could help mitigate costs in case of future extreme heatwaves. Price volatility during the summer of 2023 underscores the need for a more proactive approach to load management and outage anticipation.

The report concludes that rapid demand growth, combined with higher levels of thermal outages, has a direct impact on prices. Without better preparation to address these structural challenges, system costs will continue to rise, affecting supply stability and the competitiveness of the Texan market.

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