Wholesale electricity prices in the market covered by the Electric Reliability Council of Texas (ERCOT), the operator and regional coordinator of electricity systems within Texas, move with the price of natural gas. That’s because natural gas-fueled generation facilities generally supply marginal electricity demand.
For investors with a bullish view on the future price of natural gas, today’s low natural gas prices may present an opportunity to purchase a natural gas-fueled generation facility at an attractive price. At the same time, increasingly strict environmental regulations are in some cases requiring modifications to coal-fueled generation plants, triggering additional expenditures. Natural gas-fueled power plants, on the other hand, are cleaner, and the regulatory burden on them has not been as heavy.
