If you’ve ever wondered why electricity in Texas costs so much, you’re not alone. We’ve put together some explanations about factors that play a part – including strain on the grid, extreme weather, and high demand – as well as steps you can take to get the most for your money.
Deregulation for Lower Prices
In 2002, the state deregulated energy, opening up the door for competition among electric providers to offer the best plans and prices. The logic was that this would mean lower costs for residents and businesses alike, giving customers greater control and choice when it comes to their provider.
Even so, the average price of electricity has increased since deregulation; in 2022 it hit an all time high, although it has dropped since then.
Population Growth and Increased Demand
One major influence on these overall hikes have been the growing demand for energy resulting from the tremendous influx of people moving to our state. Year over year, more people are moving to Texas than any other state, except for Florida.
Between the years 2000 and 2021, our population increased by 45%, from around 20 million to 29 million. So the demand for energy has never been higher. This has put pressure on energy producers, as well as the grid, like never before.
Reliance on Natural Gas More than 40% of our state’s electricity is produced from power plants fired by natural gas, so the wholesale cost of power is closely linked to that of natural gas. Natural gas prices started rising in 2020, and as manufacturing processes kicked back into full gear post-pandemic, prices went even higher.
Additionally, geopolitical events like Russia’s war against Ukraine play a part internationally, as European nations are looking to source natural gas from places other than Russia.
Impact of Weather Extremes on Infrastructure
According to the Electric Reliability Council of Texas (ERCOT), 41% of our energy generation from natural gas, nuclear, and coal power comes from generating plants and equipment that are more than thirty years old. This infrastructure is particularly susceptible to inclement weather.
The summer of 2023 was the second hottest summer ever on record, and this strained natural gas plants in particular – their turbines used to produce electricity become less efficient during high temperature days, so more gas is needed to generate the same amount of electricity.
Cold temperatures can also impact generation: when natural gas pipelines freeze, it causes major disruptions, also causing prices to go up. Prices can rise even before cold weather strikes, because retail electricity providers (REPs) purchase wholesale electricity from power plants in advance, predicting how much energy they will need. If the REPs forecast extreme weather, the demand for (and price of) energy goes up.
Regulatory Changes Since Winter Storm Uri
During Winter Storm Uri in February of 2021, half of the natural gas power plants went offline and electricity prices skyrocketed; in the days following, a number of REPs went bankrupt. In response, regulatory changes were made, namely shifting the market cap for wholesale electricity markets from $9,000/MWh to $5,000/MWh. This increases the likelihood of price spikes, which can lead to higher trading values, particularly for shorter term wholesale energy.
The Impact of Renewable Energy
Among renewable energy sources in Texas, wind power is the most used. In fact, our state is #1 in the nation for wind energy production.
According to a study referenced in the Dallas News, in 2022 solar and wind energy saved consumers over $7 billion, due to the lower operating costs of wind and solar projects compared to traditional fossil fuel-based power plants. And the Texas Association of Business states that not only does renewable energy contribute greatly to our state’s economy – including a remarkable forecast of $16.7 billion in local tax revenue – it also benefits residents and businesses when it comes to energy prices. Estimates made in 2022 predicted that ERCOT market costs will decrease by up to $11 billion per year, thanks to new renewable energy production.
Legislative Efforts for Energy Affordability
In November of 2023, Texans voted to approve Proposition 7, creating the Texas Energy Fund and allocating $5 billion to support the construction, maintenance, modernization and operation of electric generation facilities – in particular focusing on construction of new natural gas power plants and improvements to existing plants. This will improve the reliability of the grid and also help address aging infrastructure.
Strategies for Managing Your Electricity Bill
So what can you do, at an individual level, to manage high prices? First and foremost, be sure to note and remember the expiration date of your current contract. Many people forget that a renewal is coming up, and generally speaking renewal rates are higher, so it can pay to shop for other options when your contract expires. If you switch providers within 14 days before your current contract expires, then you won’t pay an early termination fee.
Review the electricity facts label (EFL) of your current plan as well as any new possible plans, because each EFL clearly states key details including the cost of energy and distribution, various fees and rate structures. Also, consider long-term contracts, because you can often get a better rate on a 24-36 month contract.
If possible, the right time to make a switch in provider is not during the hottest or coldest months, when energy prices are at their highest.
Making payments on time also helps – not only do you avoid late fees, but if you miss payments it can cause your power bills to go up as well as impact future contracts, or even prompt providers to require that you pay a deposit on a new contract. At Rhythm Energy, we offer renewable energy plans and discounts that can help you save, like our industry-leading PowerShift plan that can save you $500 or more a year on electricity, or our Rhythm Rewards that give you bill credits for doing simple things you’re probably already doing. We also offer weekly usage reports with bill predictions, so you’re always in the know and can budget for upcoming bills.
