Texas starts blackouts as frigid weather sends power prices surging

The Texas grid operator began rolling blackouts early on Monday as arctic air enveloped the central US and sparked record demand for power.

The Electric Reliability Council of Texas told consumers that the need to conserve electricity had become “critical” after earlier asking homes and businesses to reduce demand “as much as possible” until Tuesday as it coped with frigid conditions that drained electricity supplies.

At 1:25am local time it announced it would begin “rotating outages” to “reduce demand on the electric system”. It added: “Traffic lights and other infrastructure may be temporarily without power.”

Map animation showing cold air plunging down to Texas, causing a price hike in electricity

A frigid air mass pushing south from Canada has sent temperatures plunging towards minus 15.5C in Dallas, forecasters said. The weather has hit natural gas supplies and wind power generation, as wellheads and turbines seize up in temperatures rarely seen in a state that is the heartland of the US energy industry.

Texas, the largest US oil and gas producer, is also the country’s top electricity consumer. Buildings that heat with natural gas compete for supplies with power plants that burn gas.

Wholesale electricity prices for delivery on Monday surpassed the grid’s price cap of $9,000 per megawatt-hour in the early hours of Monday, multiples above average prices of $25/MWh on the Texas grid.

Line chart of Texas hub south (hourly average, $/MWh) showing Texas spot electricity prices soar as winter weather sweeps the state

Dan Woodfin, Ercot’s senior director of system operations, said on Sunday that electricity demand was likely to exceed the record of 74,820MW set during the sweltering summer of 2019. He urged Texans to turn down thermostats, close window shades and unplug appliances to save energy.

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“We would expect to be in emergency operations [on Monday] through at least Tuesday morning,” he said.

When demand exceeds supply, the grid operator can order utilities to undertake “rotating outages” that last about 15 to 30 minutes in each neighbourhood, he said.

Workers clear an intersection in Oklahoma City after snow and ice blanketed swaths of the US on Sunday © AP

The cold spell will be a test of Texas’s freewheeling electricity model. Generators are paid only for the energy that they sell, not for keeping capacity in reserve for times of stress. Electricity retailers compete fiercely for customer business, unlike utility monopolies that operate in some other states.

The prospect of soaring electricity bills led some retailers to suggest that customers take business elsewhere. “If the forecast and prices are too extreme for you right now, we understand if you want to switch providers,” said the website of Griddy Energy, an electricity retailer active in Texas.

Griddy in December announced an investment from Macquarie, the Australian bank with a large energy trading arm, and a new management team that would focus on “solutions to combat price volatility”.

AP Gas & Electric, another retailer, emailed customers with tips on conservation titled: “Stop the Blackout. Reduce your usage NOW!”

Days of stratospheric power prices threatened to stretch wholesale power buyers’ ability to pay for their purchases, a process overseen by Ercot. At the weekend, the grid operator adjusted the way it calculated the good-faith money required to backstop trades.

“For the duration of the change, this lowers the collateral requirements for our market participants,” said Kenan Ogelman, Ercot’s vice-president of commercial operations, “so they could stay in the market”.

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Natural gas supplies have been “limited” to some power plants, Ercot said. Analysts said that cold temperatures had curtailed the flow of gas from wells and gathering pipelines, helping to send spot prices to more than $100 per million British thermal units, up from below $3.

The gas price surge has rippled from Chicago to California, where the grid operator told generators they could update energy bids to account for “exceptionally high” fuel costs.

Line chart of Waha Hub (Permian Basin) day-ahead natural gas prices showing Natural gas prices jump

Texas power supplies were also tight because wind turbines were frozen by ice, with about 12,000MW of capacity out as of Sunday morning, Woodfin said.

Oil prices rose as well, with the West Texas Intermediate crude futures for March delivery climbing $1.17 to $60.95 a barrel, surpassing $60 for the first time in more than a year.

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