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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

Virginia attorney general fires Jan. 6 investigator from university post

McIntire Amphitheater at the University of Virginia, Charlottesville, Virginia. Photo: Robert Knopes/UCG/Universal Images Group via Getty Images

The lead investigator for the Jan. 6 House select committee investigating the Capitol riot has been fired from his position as the University of Virginia's counsel by the state's new Republican attorney general, per the Washington Post.

Why it matters: Democrats say the removal of Tim Heaphy from his post after some three years while he's on leave from the university to investigate the insurrection is likely "retribution" for the House probe — an accusation strongly denied by the office of state Attorney General Jason Miyares (R).

4 hours ago - World

Taiwan's military scrambles jets after detecting 39 Chinese warplanes

J-20 stealth fighter jets in Zhuhai in the Guangdong Province of China last year. Photo: Chen Jimin/China News Service via Getty Images

Taiwan's defense force said 39 Chinese warplanes flew into its Air Defense Identification Zone (ADIZ) on Sunday.

Why it matters: The largest Chinese air force incursion into the zone since October came a day after the U.S. and Japanese navies conducted a joint exercise in the Philippine Sea.

5 hours ago - Sports

Gonzaga University revokes NBA great John Stockton's tickets over mask stance

Former Utah Jazz player John Stockton during a 2017 press conference in Salt Lake City. Photo: Melissa Majchrzak/NBAE via Getty Images

Gonzaga University suspended the season tickets of notable alumni John Stockton after the NBA Hall of Famer failed to comply with the school's basketball games mask mandate, the Spokesman-Review first reported.

Driving the news: "Basically, it came down to, they were asking me to wear a mask to the games and being a public figure, someone a little bit more visible, I stuck out in the crowd a little bit," the former Utah Jazz point guard told the outlet in an interview Saturday.