Surging Texas Power Prices Promise Both Doom and Riches

(Bloomberg) -- Skyrocketing electricity prices in Texas are creating a financial windfall for power generators able to supply energy during the unprecedented cold spell. For companies unable to deliver, losses may be monumental.

Power sold on Texas’s main grid likely totaled $10 billion on Monday based on extraordinarily high prices and demand, according to Wade Schauer, research director of Americas power and renewables at Wood Mackenzie. It may end up being higher after the Public Utility Commission of Texas moved to raise some prices to reflect scarcity.

The most likely winners are going to be generators whose plants can sell power at $9,000 a megawatt-hour, the price cap in Texas.

A 100-megawatt wind farm in Texas that might have normally made almost $40,000 over a two-day period in February could reap more than $9.5 million on Monday and Tuesday alone, said Nicholas Steckler, a power-markets analyst at BloombergNEF.

“A lot of generators will make more than a year’s typical revenue just yesterday and today,” he said. “In the past five years, if generators could get several hours of scarcity in the summer, they were on their way to a good result for the year. Now, we’re talking days -- days of full scarcity.”

But for generators whose plants shut down due to frozen instruments, limited natural gas supplies or icing, losses could be substantial. Similarly, retail electricity providers unable to fulfill their commitments will be forced to buy power on the spot market at inflated prices, and sell it at one-tenth of the cost, said Andy DeVries, a power analyst at CreditSights.

Among major power producers, Calpine Corp. may be better insulated than others because it has the “smallest retail book,” DeVries said. Vistra Corp. and NRG Energy Inc., meanwhile, have larger retail exposures. NRG fell as much as 8.1% on Tuesday, the most in intraday trading in nearly 11 months. Vistra traded higher.

“We believe our integrated platform, having both a sizable retail presence in addition to a large and diverse generation fleet, is the best structure to mitigate volatility in a variety of wholesale power price environments, including in the current situation,” Vistra spokeswoman Meranda Cohn said in a statement.

NRG said it wasn’t able to comment on the status of its power hedging strategy because it was proprietary and financially material. Calpine didn’t immediately respond to a request for comment.

Overall, power retailers in Texas are the most vulnerable to the price swings, DeVries said.

“The retailers are screwed,” he said. “I bet you see numerous bankruptcies.”

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