NRG Benefiting From High Texas Power Prices
NRG Energy (NYSE: NRG) is a New Jersey-based power company that provides electricity and gas to more than 3.7 million customers in several states. The company has a big portfolio of operating generation projects in the power-hungry Texas market that have seen a boost in revenue over the past two quarters. These power plants may be ready for even more upside that could be important to a longer-term investor.
The power market operated by Electric Reliability Council of Texas (ERCOT) has experienced record demand for electricity based on growth in consumption, the retirement of roughly 4.7 GW of older power plants, and a lack of new power projects.The region's reserve margin, or the difference between available generation capacity and forecasted peak demand, has steadily declined since 2015. ERCOT's spring 2019 report showed the reserve margin at a historic low of only 7.4%.
To ensure power is available, ERCOT uses scarcity pricing during periods of high demand. This means generators are paid a higher power price as a type of incentive to encourage them to keep their assets available for use. Over the past summer ERCOT was forced to use its emergency alert system based on record demand for power, bringing electricity prices to a whopping $9,000 per megawatt-hour for a portion of the day, according to an October report from the ratings agency Moody's. The region saw prices exceed $1,000 per megawatt-hour based on extreme weather on several other days in the summer. All of these factors mean improved profitability for certain market players, Moody's said.
Source Fool.com
