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Electricity prices in Texas rise 1,600% as heat wave pushes energy demand to record levels

Hotter temperatures in Texas in May are expected to set new energy consumption records and send electricity prices soaring.

The state's grid operator, the Electric Reliability Council of Texas (ERCOT), predicted demand would increase from 57,486 megawatts on Friday to 71,893 MW on Monday, 72,725 MW on Tuesday and 74,346 MW on May 24 Reuters.

Next week, demand could surpass the current May record of 71,645 MW set in 2022, but still fall short of the all-time high of 85,508 MW set on August 10, 2023.

That's because weather forecasts for top cities like Houston and Dallas have predicted high temperatures in the 90s, above seasonal norms, meaning more Texans will crank up their air conditioners.

Expectations for the recent surge in demand sent power prices higher in the spot market, with prices rising the next day at ERCOT's northern hub to $120 per megawatt-hour MWh on Friday, from $40 on Thursday, according to data cited by LSEG Pricing data Reuters.

And for about an hour late Friday, day-ahead prices on ERCOT's website rose as high as $688 per MWh, up more than 1,600% from the previous day.

The Texas electricity market is deregulated and has its own grid. However, the actual price consumers pay depends on the type of contract they have with their provider. And since February 2021, energy suppliers have been prohibited from passing on wholesale electricity prices in full to their private customers.

Brutal heatwaves in recent summers have shattered electricity demand records and sent spot prices into sharp, sudden swings. In September, Texas electricity prices rose by up to 20,000%.

Meanwhile, Texas has seen an influx of residents since the pandemic as people fled states like California and New York, where the cost of living is higher, meaning more customers are connected to the grid.

Texas has also become a hotbed of Bitcoin mining and boosting electricity demand as the state's deregulated electricity market and abundance of cheap natural gas have become attractive to the energy-intensive sector. The proliferation of data centers and the rise of artificial intelligence have also boosted demand.

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Anna Harden

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