A changing relationship
For much of the past two decades, there was a reliable shortcut for understanding where Texas wholesale electricity prices were headed: watch the price of natural gas. Because gas-fired generators frequently set ERCOT’s marginal price, increases in gas prices generally translated into higher power prices through a relatively stable relationship. Traders, utilities, and risk managers built forecasting and hedging strategies around that link.
That relationship is weakening. A shift is taking place in ERCOT as batteries play a growing role in price formation during the ordinary hours that make up most of the year. Gas remains critical during tight grid conditions and continues to influence forward prices, but it is no longer as consistently dominant in determining wholesale prices. That change has important implications for how risk is understood and managed in the Texas power market.
How a power price actually gets set
Electricity markets work like a reverse auction. Every few minutes, the grid operator lines up every available power plant and battery from cheapest to most expensive, then keeps adding them to the mix until there's enough electricity to meet demand. Whichever resource is the last one added (the most expensive), sets the price that everyone gets paid, even the cheaper resources further down the list.
That last resource is called the marginal resource, and its cost is called the marginal price. For most of the 2010s and early 2020s, that last resource in ERCOT was almost always a natural gas plant, specifically the flexible "combined-cycle" gas turbines that ramp up and down to meet swings in demand. That's why gas prices and power prices moved together: gas was so often the marginal resource.
What our data shows
We tracked which technology has been the marginal, price-setting resource in ERCOT every season since 2022. There is a notable shift starting in 2023:
In 2022, gas turbines were the marginal resource so often that they were practically the whole story. By 2025, batteries have taken over that role across every season of the year.
Why this happened
Batteries are shifting cheap electricity into peak hours.
They shift electricity from low-price to high-price hours by buying power when it is cheap and selling it when demand rises. The price they offer reflects what they paid to charge, the electricity lost in the process, wear on the battery, and the potential value of saving the power for later. As ERCOT’s battery fleet has grown, reaching 14.1 GW by July 2025, storage has increasingly displaced more expensive CCGT output at the margin and set the clearing price. On July 30, 2025 batteries charged near $20/MWh and supplied a record 7.1 GW during the evening peak. The Dallas Fed found that batteries and solar helped ERCOT meet record demand with far fewer extreme price spikes than in 2022. CCGTs still provide substantial generation and longer-duration reliability, but batteries are increasingly taking over their former role as the marginal resource during peak hours, often at a lower price.
Gas’s share of the stack is diminishing.
According to the EIA, natural gas's share of ERCOT's midday generation fell from 50% in 2023 to 37% in 2025, as solar output nearly doubled over the same window.
This shift is an example of the merit-order effect. When low-cost resources such as solar and batteries are available, ERCOT can meet more demand before calling on higher-cost gas plants.
Why this matters for ERCOT market participants
Changing power price dynamics are reshaping investment decisions on both sides of the energy market. Generation developers must reconsider which technologies to build and how future projects will earn revenue as batteries increasingly influence peak prices. Large power buyers, including data centers and industrial facilities, must rethink where, when, and how they procure electricity. As the historical relationship between natural gas and power prices weakens, both producers and consumers will need investment and hedging strategies designed for a grid increasingly shaped by solar and storage.
Sources: U.S. Energy Information Administration, "ERCOT increasingly meets rising demand with solar, wind, and batteries" (2025); Federal Reserve Bank of Dallas, "Batteries, solar help keep the lights on in Texas" (November 2025); Yes Energy, "ERCOT's Battery Storage Boom" (2026); Energy Ogre, Texas Electricity Market Update Q1 2026; Sensfuß, Ragwitz & Genoese, "The Merit-Order Effect", Energy Policy (2008).
This article is for informational purposes only and does not constitute legal, financial, or investment advice.
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