Reserve Margin - Texas Electricity Rate Increase

Have you heard of the term “reserve margin”?  This energy-related term refers to the amount of power generation capacity available, opposed to the amount of power demand that’s expected.  ERCOT (Electric Reliability Council of Texas) manages the power/electric grid for most of Texas and reserve margin is used to plan, prepare, and assess upcoming supply and demand strategies.

For example, the reserve margin that’s typically used by Texas’ ERCOT to ensure reliability is right around 13.75%--meaning 13.75% more power generation capacity is available than the expected demand.  This gives a bit of a buffer when weather conditions don’t pan out as expected or other unique reasons for when demand could be higher than normal/average business flow.

Based on ERCOT’s most recent CDR (Capacity, Demand, and Reserves) report that was published in December 2021, the following percentages for reserve margins for summer are predicted in the upcoming summer and following years (page 13)::

Summer 2022 - 23.9%

Summer 2023 - 39.4%

Summer 2024 - 41.7%

Summer 2025 - 40.3%

Summer 2026 - 38.7%

The report also includes predictions for the following years, up to 2031.

So you may be wondering, how are Texas electricity prices affected by reserve margin forecasts.  Essentially, the projections that are made on the CDR report directly affect how trading occurs for wholesale energy in the open/deregulated markets.  ERCOT has stated that this summer, Texas customers will experience record-increases in electric pricing, with the change of weather during the heat of summer.

Third-party electricity retail suppliers take all of this into account, while presenting pricing for their brokers, or directly to the client.  Suppliers must decide how much power to purchase or hedge in advance and the quantity of electricity they would want to purchase in the open market.

After Winter Storm Uri hit in 2021, new laws and legislations were put into place after pitfalls in Texas’s power grid were exposed and Governor Greg Abbott took action toward reducing the risk of potential similar devastating situations.  Market rate caps on ancillary services and the wholesale electricity market were also affected by these regulation changes, making the shopping process a bit more complicated than in the past.

What’s the best plan of action that Texas electricity customers can take, to prepare for the seasonal change and Texas electricity rate increases?  Lock in on a fixed-rate all-inclusive contract for peace of mind and to protect themselves from weather and market volatility.  Fixed-rate contracts supply charge does not fluctuate and isn’t impacted by weather volatility or variability, so it’s always best to lock in early.  There are short term to long term options available and you don’t have to figure it out on your own.

Ananta Energy Source is a trusted procurement company that assists in the shopping process for hedging your agreements and protecting you from volatile conditions that may affect your energy rates.  Let us help you by contacting us here.