Mapping the causal structure of price formation in Texas's transitioning electricity market

TL;DR

This study uses causal discovery to analyze how renewable energy, especially wind, and demand influence electricity prices in Texas, revealing wind's dominant causal role and complex regional effects.

Contribution

It introduces a causal modeling approach to understand dynamic relationships among supply and demand factors in a transitioning electricity market.

Findings

Wind generation is the primary causal driver of prices, surpassing natural gas influence.

Wind reduces local prices but redistributes congestion costs seasonally.

Natural gas prices remain relevant but have a changing, modest influence over time.

Abstract

Electricity markets are changing, driven by large-scale renewable integration and rising demand from electrification and digitalisation. This raises fundamental questions about how electricity prices form as the relationships among key price determinants evolve. Here we apply causal discovery to characterise these dynamics across major supply- and demand-side drivers of wholesale electricity prices in Texas, where rapid renewable growth intersects with surging demand. We show that wind generation has become the dominant causal driver of day-ahead electricity prices with effects more than 3 times larger than those of natural gas prices, overturning the view of the Texas market as gas-price-driven. Wind reduces prices locally but redistributes congestion costs across regions in seasonally varying patterns. Natural gas prices remain causally relevant, though their influence is modest and the dominant gas benchmark changes over time. Electricity demand also shows region- and period-specific causal effects. These findings highlight the need for causal models that capture time-varying relationships across both supply and demand to guide system planners and market participants navigating the ongoing transition.