Financial Services Association, May 9 (Editor: Xiaoxiang) Spot electricity prices in Texas in the US soared nearly 100 times in just one night on Wednesday, as the shutdown of a large number of power plants raised concerns about the shortage of electricity at night.

According to data from the Texas Electricity Reliability Commission (ERCOT), spot electricity prices in the North Hub region, including Dallas, soared to more than $3,000 per megawatt hour before 7 p.m. local time on Wednesday, while the price at the same time on Tuesday was only about $32.

On Wednesday morning local time, ERCOT issued an observation alert that it is expected to face a potential shortage of electricity reserves from 7 p.m. to 9 p.m. This means that the remaining buffer in the backup power supply may drop to a sufficiently low level that backup generation needs to be called in or even limited use of electricity.

This situation is the most tense one so far this year and increases the risk that spot electricity prices will rise to the upper limit of $5,000 per megawatt-hour.

Currently, the abnormally hot weather in Texas has increased the demand for cooling, while also reducing the efficiency of many power plants. Furthermore, wind power generation also declined from the previous day, leading to an increase in the number of power outages.

High electricity prices may force major electricity users, including Bitcoin miners, to drastically reduce their business within a few hours when electricity prices are at their peak.

The impact on consumers will depend on the contracts they sign with electric companies. There are many electric power companies in Texas. Residents are free to choose which appliance company to buy electricity from, and there are a variety of electricity purchase packages.

For example, some packages are graded, and residents usually spend less to buy electricity, but once they encounter extreme weather and electricity consumption increases, electricity bills can be frighteningly high. There are also quite a few Texas electricity companies' electricity prices linked to demand. When residents' demand for electricity surges, electricity prices skyrocketed accordingly.

High electricity prices are likely to continue this summer

Many analysts of the US electricity market have now predicted that with extreme heat and rising demand for electricity, electricity prices in Texas are expected to continue to rise this summer, although electricity prices in other parts of the US may generally be lower.

According to data from Standard & Poor's Global, the wholesale price of forward spot electricity in August at the Texas Electricity Exchange Center remained above $175 per megawatt-hour, while the average price in August last year was $90.18 per megawatt hour.

Sean Kelly, CEO of energy analysis and forecasting company Amperon, said the hot weather increased demand for refrigeration, and compute-intensive businesses such as data centers and Bitcoin mining are expected to drive local electricity prices to continue to rise in summer.

Currently, the US grid is facing pressure from increased demand from businesses such as electrification of transportation and data centers that support artificial intelligence generation, and it often takes years to increase power generation to fill the gap — especially if it only relies on renewable energy. While the increase in wind and solar energy helps strengthen the grid, its electricity output depends on weather conditions.

Kelly pointed out, “With the growth of renewable energy, the decommissioning of base-load fossil fuel power plants, and reliance on renewable energy, electricity prices will be very expensive in the days when renewable energy cannot be fully filled.”

This urgent situation is unquestionably most prominent in Texas. The reason behind this is that the 48 states in the US are broadly divided into three major grid systems — the Eastern Combined Grid, the Western Union Grid, and the independent Texas Power Grid. There is almost no interconnection between the Texas power grid and the power grids of neighboring states, so it is difficult for this major energy state to “borrow” electricity from other power grids during extreme weather.

This is not the first time in history that Texas has frantically raised electricity prices in the face of tight electricity consumption; there have been situations that are more serious than the current one.

In February 2021, Texas experienced an electricity shortage that lasted for many days during an extreme cold wave, which caused millions of people across the state to lose power and dozens died. Electricity prices once soared to 9,000 US dollars/megawatt-hour (the upper limit at the time), and many residents received sky-high electricity bills. ERCOT was also heavily criticized for the design of its power grid, which failed to prepare to maintain power supply in the event of an emergency.