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Transformers at an electrical substation in Houston. Photo: George Rose/Getty Images

Demand for air conditioning across Texas helped drive wholesale electricity prices to the market cap of $9,000/MWh earlier this week, testing both the grid's capacity and the public's response to price spikes under the state's wholesale electricity market.

The big picture: ERCOT, the grid operator for most of Texas, operates an “energy-only” market that pays power plants only when they produce energy, and not merely for being available to do so. Many ERCOT plants thus rely on high-priced scarcity events to stay profitable in the otherwise low-cost grid, where prices are kept down by cheap natural gas prices and, to a lesser extent, renewables.

How it works: ERCOT boosts the wholesale market price when reserves are low, sending a market message that capacity is valuable. But this process has been criticized for not providing enough scarcity pricing to drive new investment across the electricity system.

  • The Public Utilities Commission of Texas responded this summer by accelerating the rate of price increases during high demand. Undesirable as they may appear, these high seasonal prices are a crucial part of how energy-only electricity markets work.

Flashback: ERCOT has seen this situation before. For the past two summers, its grid has had a lower reserve margin (power plant capacity beyond projected peak demand) than is considered economically optimal (8.6% this year vs. 10.25% optimal).

Where it stands: The grid has so far survived summer with no real damage, and the weather forecast promises near-term relief.

  • Some emergency response services were deployed, but there was still plenty of room in the system to maneuver.
  • Demand response has played an increasingly important role in the market: When prices spiked, demand dropped, helping the system keep lights on and air conditioners humming.

What they're saying: Some groups have tried to attribute higher prices to changes in Texas' electricity mix — including greater reliance on wind power, which this year could surpass coal in the #2 energy generation spot, behind natural gas.

  • Yes, but: Low natural gas prices have a bigger effect than renewables. And over the course of the year, a few high-priced days provide needed revenues in an otherwise efficient market.

The bottom line: Texas' energy-only market is still a relatively new concept. Some refinements may be needed, but the recent high electricity prices are a feature of the system, not a bug.

Joshua Rhodes is a senior energy system modeler and analyst at Vibrant Clean Energy and a research associate in the Webber Energy Group and the Energy Institute at the University of Texas at Austin, where he has served as the principal investigator of an ERCOT–sponsored research project.

Go deeper

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12 mins ago - World

Airbnb doubles number of Afghan refugees it will house to 40,000

Afghan refugees arriving at Dulles International Airport in Virginia in August 2021. Photo: Kent Nishimura/Los Angeles Times via Getty Images

Airbnb CEO Brian Chesky and co-founder Joe Gebbia said during a visit to Washington on Wednesday that they're offering temporary housing to 40,000 Afghan refugees worldwide, doubling a previous commitment.

The big picture: The housing typically lasts several weeks, and Airbnb and Airbnb.org provide subsidies to hosts.

Florida lawmaker introduces abortion bill modeled after Texas law

A view of the old Florida Capitol building, which sits in front of the current new Capitol building, in Tallahassee. Photo: Mark Wallheiser/Getty Images

A Florida lawmaker introduced a bill Wednesday modeled after Texas' new law prohibiting abortions after a fetal heartbeat is detected, or roughly six weeks — before many people know they are pregnant.

Why it matters: Similar bills introduced to the Florida legislature have failed, but that was before the Supreme Court declined to block Texas' law, which is the most restrictive abortion law to be enforced since the Supreme Court's Roe v. Wade decision legalized abortion nationwide in 1973, according to AP.

Tech firms' nightmare: Vanishing green cards

Illustration: Megan Robinson/Axios

Thousands of green cards are about to go to waste, leaving Google, Microsoft and other tech companies fuming — and pushing the Biden administration to ensure it doesn't happen again.

Why it matters: Tech workers have waited years for green cards that will grant them permanent legal status in the U.S. — but because of pandemic-related processing delays, they will have to wait even longer.