Texas Energy Crisis of February 2021

What Happened

The week of February 14th, Winter Storm Uri hit Texas with a freeze like nothing its residents have experienced before. The physical infrastructure of the electricity grid is very susceptible to being damaged by the cold, from ice storms knocking down power lines to natural gas literally freezing at the site of production to power plant workers simply not being able to drive to their jobs. The extreme weather leads to both outages (decreased supply) and the amplified need for heat (increased demand) – the result of which is an electric supply crisis.

Because they’re on their own grid (ERCOT), Texas can’t easily share electricity with other states in emergencies like this or during times of peak demand. This has incentivized ERCOT to build more wind turbines which have not helped during this winter peak. It’s worth noting that in states like Minnesota – where cold weather is the norm – wind turbines come equipped with “cold weather packages” to allow them to still operate in extreme weather. Texas was not so equipped. In addition, the electricity generators powered by natural gas could not get natural gas due to freeze offs, pipeline constraints, and high demands for heat. For these reasons, Texas has been instituting rolling blackouts since roughly February 15th which began to roll back on the 19th. The effects of these blackouts have ranged from inconvenient to deadly, and are still being calculated.

How Energy Prices Were Affected in Texas

ERCOT set a cap of $9,000/MWh ($9 per kWh – more than 100 times what you probably pay), and that peak was met and applied for days. Natural gas spot prices were in the $150-300/dth range in Texas.

How Energy Prices Were Affected in the Northeast

Prompt month natural gas broke $3.00/Dth for the first time in over two years with daily spot prices $10 to $20/Dth. Electricity followed suit with PJM Western Hub day-ahead prices exceeding $130/MWh (13 cents per kWh). The remaining 2021 forward strip exceeded 3.19 cents/kWh off of a recent low of 2.48. That may not sound like much, but a 7-mil increase in your fixed price is usually something you notice at contracting time.

What Now

The good news for Texans is that there is a light at the end of the tunnel, though likely a wet one – temperatures are expected to break 60 degrees Fahrenheit this week and begin a major thaw.

The rest of the market would be well-served to wait if they’re considering locking in, especially if their current contract ends after March 31st. If your current contract ends this month or you’re already post-contract, you could be exposed to some unusually high variable pricing. We encourage you to reach out to your Shipley Energy account manager to discuss your options.

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