Electricity in Texas is deregulated, which means that utility companies at the distribution level can compete in the open market to offer residential and commercial contracts. Texans are now accustomed to researching new electricity rates every six to twelve months or so to choose who will supply electricity and select a contract that works for them.
Although deregulation initially led to lower electricity prices in the state, it comes with complexity and transparency issues. These issues may negatively impact the long-term prospects of reliable, reasonably priced electricity for Texans in the long term.
Electricity rates are “decoupled” in Texas, which means generation from power plants and transmission from the grid are two separate costs on a utility bill from separate companies. In the deregulated Texas market, customers have a choice of who provides generation, but not transmission. Customers choose their electricity packages from retail electricity providers (REPs).
REPs offer contracts to Texans in a way very similar to a cable contract, where there is often a “teaser” electricity rate that starts the customer off at an attractively low rate, then rises sharply months later. . Typically, a client signs a contract for a period of six months to three years. There are often cancellation fees in excess of $250, so it can be expensive to switch providers at the end of that pesky rate period.
There are also a lot of complexities hidden in the fine print of these contracts. For example, purchasing a power rate contract in Dallas, Texas, at the time of writing, the “lowest” contract available on Choose Texas Power, a rate buying platform, is from REP Frontier Utilities. The rate is listed at $0.0132/kWh at 1,000 kWh.
However, the fine print in the contract reveals that the first 500 kWh used each month, a significant portion of a home’s monthly usage, is charged nearly double the list rate at an average of $0.236/kWh. The next 500 kWh are charged an average of $0.132/kWh, and any usage above 2,000 kWh is charged an average of $0.181/kWh.
The true load, looking at the standard electricity information label, is $0.19/kWh, or 44% more than the price displayed on the label. In addition, there is a cancellation fee of $200, an additional TDU fee of $0.038/kWh, and a fixed delivery fee of $3.47.
This example is representative of many in the Texas energy supplier market, and it creates a real opportunity cost for residents. Time spent sifting through the fine print of these contracts to save on monthly bills is wasted valuable time.
The deregulated market also opens the door to predatory contracts, which disproportionately affect low-income community members. Currently, Massachusetts is proposing legislation to weed out competing electricity providers, citing predatory contract issues.
This problem was highlighted by the Uri winter storm in February 2021, which caused massive spikes in unexpected electricity demand and froze some natural gas peak demand plants. The storm led to widespread shortages, blackouts, and wholesale market prices rocketed to the legal cap of $9/kWh for several days. This was a 7,400% increase over the average rate at the time of about 12 cents/kWh.
Some customers who signed predatory contracts were directly exposed to wholesale prices. After the storm, Chambers County resident Lisa Khoury received an invoice from supply company Griddy for $9,340. Her normal bills ranged from $200 to $250 a month. Griddy drafted payments from Khoury’s bank several times, drawing $1,200 before blocking further charges from the bank.
Khoury still owed Griddy the rest of the bill when she decided to file a class action lawsuit against the company, asking for $1 billion in relief from affected customers.
Price up, reliability down
David Kinchen, COO of Energy Ogre, is close to the issue, as his company charges residential customers $10 a month to buy competitive REP contracts, sifting through fine print and predatory contracts to find rates. reasonable. Kinchen said prices have risen sharply, almost doubling since last year.
“The direct correlation is that natural gas sets that marginal price unit and doubles prices,” Kinchen said. “Let’s say we come to an event and we need large amounts of natural gas. We can only get so much out of production. Much of it needs to come out of storage. As you can imagine, when you get to those very brief periods of high demand, having that in storage ready to go is a lot of value. When this number is not stored, it must go out of production. »
As southern and western parts of the United States are hit by an early heat wave in June, demand, and therefore prices, are already rising, at a time when Americans are already facing high inflation and prices. high gasoline. Kinchen said there could be some relief in the next eight to 10 months, but that’s uncertain as gas prices can be tied to geopolitical events.
Reliability is also a growing concern. Demand hit a seasonal high of 69,150 MW during the winter storm, and the Texas grid didn’t have enough reserve power to supply, leading to widespread outages.
The problem lies with deregulated markets, as Utility Dive editor Paul Griffin wrote: “The electrical system in Texas wasn’t really designed to deliver electricity to customers. It was designed to generate revenue for the patchwork of businesses that choose to participate in its marketplace. Companies that could disappear in a year. Companies that collect customer bills but have no obligation to restore downed power lines because someone else owns them.
Griffin said this model opens the door for energy producers and suppliers to save money, such as not winterizing equipment or performing proper reliability testing for standby power.
The Uri winter storm has been described as an “extreme event”, but extreme weather conditions are becoming more and more common. Speaking at the RE+ conference in San Antonio, Solar Energy Industries Association (SEIA) President and CEO Abigail Ross Hopper said, “The past as a model for the future is no longer true. Centennial storms occur every five years. What is normal? What is the baseline?
The panel Hopper led at RE+ on the ERCOT Network shared that 40,000 power outages occurred in the United States last year. This represents a 50% year-over-year increase from 2020. As the electrification of homes and vehicles continues, demand will only increase, putting more pressure on the network and on the residents’ portfolio.
Solar for clarity
In this web of complexity, residential rooftop solar can provide some clarity for Texas homeowners. Even if the system cannot meet 100% of a home’s energy needs, the demand provided by solar power will provide a clear and transparent view of electricity bills for the next 20-25 years. There are no renegotiations every several months, and on day one a customer receives the exact amount of what they will pay for their system for the duration of the contract.
As Kinchen noted, rates have almost doubled since the summer of 2021. Where will ERCOT rates be in 25 years?
Historically, people have benefited from the early adoption of solar power, but savings can vary depending on roof adequacy, home energy needs, and other factors. Homeowners interested in solar power should gather at least three custom quotes designed for their needs to understand the opportunity before them. EnergyWise and SolarReviews’ Solar Calculator may be a good place to start your search.
As an example, we return to the “lowest” contract available on Frontier Utilities’ REP purchase website. At an average rate of $0.19/kWh for 1,000 kWh, that’s $190 per month. Add the TDU energy charge and the rate is $0.228/kWh and a monthly bill of $228. Paid 12 months of the year for 25 years, and the total cost of electricity would be $68,400.
Based on an average solar radiation during peak sunshine hours of 4 kWh/m2/day, this same energy consumption of 1,000 kWh per month Would need an 8 kW system to meet his needs. Many places in Texas receive much more sunlight than this example.
According to EnergySage, an 8 kW solar system costs an average of $15,925 after incentives in Texas. Financing rates often vary from 3% to 7% for a bay. Assuming the highest incentive rate of 7%, loan repayments would average $112 per month, and the total amount paid over 25 years would be $33,768.
So, assuming grid rates remain stable for 25 years, maintaining the status quo would cost $68,400, while paying for a solar panel that produces the same 1,000 kWh per month would cost $33,768 under very conservative assumptions.
It’s safe to say that electricity rates will continue to follow historical trends and increase in the future, so securing a rate for long-term clarity may be one of the best reasons to install power. residential solar.
In the next edition of this series, photo magazine will follow with an analysis of solar and battery storage, and how the technologies benefit both homeowners and the grid as a whole.
Jason O’Leary, Principal Analyst at pv-intel.comcontributed to this article with data analysis and data visualization.
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