Deep Dive Into Texas Power Data

As we dug through EIA data recently, some items stood out as it relates to Texas natural gas and power markets and the impacts of renewables. As always we try to let the data do the talking.

Texas is the #1 state in the country for natural gas production.

One would logically think the state with the highest natural gas production, the state with associated gas from the Permian occasionally driving prices negative in West Texas would deliver gas for power consumers at a cost lower than the rest of the country.

Amazingly, since 2021 one would be wrong. Reliability matters for all energy sources.

In February 2021 a winter storm in that went deep into Texas to a natural gas price spikes, depleted inventories, freeze offs and operational problems, all which led to the largest drop in natural gas production on record.

The impact on natural gas prices delivered to electricity consumers was significant.

Natural gas prices have been lower in Texas 23 of the last 33 months covering January 2021 through September 2023, Despite that, natural gas delivered for electricity has cost 13% more in Texas than in the U.S. overall. If we exclude February 2021, natural gas costs for electricity are 11% lower in Texas than the U.S. overall.

The impact of the spike in natural gas is much more muted in electricity prices for a number of reasons - fuel source diversity, fixed-pricing plans and regulatory lag in some areas of the states, among others.

But the data on higher natural gas input costs got us thinking. Texas is exploding in renewable energy. With more renewable energy and higher natural gas costs, power prices should be higher than the rest of the country, no?

We have seen just the opposite over the long term. Since 2009 power prices to all sectors in Texas are down 7% versus the U.S. up 31%.

The decreased power prices in Texas are nuanced. Industrial power prices are down 22%, commercial down 16%, but residential up 11% over the timeframe.

If we look at just residential prices, the story is similar, nothing stands out to indicate Texas power prices are surging due to the increasing relative share of renewable power.

Since January 2021, power prices in Texas are up 21% on a trailing 12-month basis versus 20% for the U.S. overall. Texas natural gas input costs for electricity have been 13% higher than the U.S. as a whole and natural gas represent 40+% of power generation in the state.

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There is little mathematical evidence to suggest the increasing penetration of renewable energy into the Texas power stack is causing a surge in energy prices relative to the U.S. overall, which is growing renewable power capacity at a much slower rate.

We will keep an eye on this ratio as Texas continues to outpace U.S. renewable growth.