(Bloomberg) -- California will be even hotter than Texas Friday afternoon, yet only the Lone Star state will feel the pinch of soaring electricity prices as demand soars.
That’s because California has more power standing by to meet consumption, more capacity for generating solar energy, and more help from neighbors when supplies get tight. In Texas, the grid is relatively isolated from the rest of the country, there’s much less supply in reserve, and there are fewer solar installations that could help during the hottest hours.
Wholesale power in Texas surged to thousands of dollars per megawatt-hour every day this week and briefly reached a cap of $9,000 during emergency declarations on Tuesday and Thursday. The average real-time price was $607 so far this week. By contrast, power in Southern California briefly breached $900 twice, and averaged just $36.54 a megawatt-hour.
Both states face dangerous heat on Friday and some of the highest electricity use this year. Temperatures from Palm Springs to Sacramento will blow past 100 degrees Fahrenheit (38 Celsius), according to the National Weather Service. That’s higher than Houston’s still-hot 96 degrees. But California expects to have about 10% more supply than demand on Friday, while Texas’s reserves dropped to less than 3%.
“It’s a much tighter market in Texas,” said Shahriar Pourreza, head of North American power at Guggenheim Securities. “That’s why they’re getting these price spikes that California just doesn’t see.”
Additionally, California has 25,000 megawatts of installed solar capacity, compared with about 2,950 megawatts in Texas. The large capacity helps the Golden State reduce demand from the grid by supplying homes and businesses directly, as well as produce more for the grid from giant solar farms during the brightest hours of the day. That in turn helps depress prices, according to Chris DaCosta, an analyst at Genscape.
“Extreme heat affects both states, but out West they can lean on each other,” he said, referring to California’s ability import power from neighboring states such as Oregon, Nevada and Arizona. “Texas is alone.”
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