Power Purchase Agreements (PPAs) for Texas Commercial Businesses

Power Purchase Agreements have evolved from a niche procurement tool used exclusively by Fortune 500 companies into a viable option for a much broader range of Texas commercial electricity buyers. As renewable energy costs have declined precipitously — solar PPA prices have fallen over 80% since 2010 — and as corporate sustainability commitments have intensified, PPAs are now being evaluated by multi-location restaurant groups, hospital networks, large manufacturing operations, and data center operators across the ERCOT market.

But a PPA is not a standard retail commercial electricity contract. It is a long-term financial instrument with real complexity, significant risks, and consequences that persist for a decade or longer. Entering a PPA without fully understanding its mechanics is one of the most expensive mistakes a commercial energy buyer can make.

This guide provides a thorough examination of how PPAs work in the Texas ERCOT market, the structural differences between physical and virtual PPAs, the financial risks you must evaluate, the accounting implications, and a practical framework for deciding whether a PPA makes sense for your business..

What Is a Power Purchase Agreement?

A Power Purchase Agreement is a long-term contract between an electricity buyer (the "offtaker" — your business) and a power generator (typically a wind farm or solar project developer). Under the agreement, the buyer commits to purchasing the electricity output of a specific generation project at a predetermined price for a fixed term, typically ranging from 10 to 25 years. The generator uses this committed revenue stream — the certainty of a creditworthy buyer purchasing its output for decades — to secure financing for the construction and operation of the project.

This financing mechanism is the core economic rationale behind PPAs. Building a utility-scale wind farm costs $1-2 billion. Building a large solar installation costs hundreds of millions. Lenders and investors will not finance these projects without long-term revenue certainty. The PPA provides that certainty, and in return, the offtaker typically receives electricity at a price below what they would pay on the open market — particularly in later years of the agreement as retail electricity prices rise with inflation, fuel costs, and grid infrastructure investments.

How PPAs Differ From Standard Retail Contracts

Understanding these differences is essential before evaluating any PPA opportunity:

Physical PPAs: Direct Electricity Delivery

In a physical (also called "retail" or "sleeved") PPA, the generator delivers electricity directly to your account through the ERCOT grid. You physically receive and consume the electricity generated by the project. The mechanics are similar to a standard retail electricity contract in how power flows — the key differences are the price structure, term length, counterparty, and the fact that output is variable (dependent on wind or solar conditions).

How Physical PPAs Work Step by Step

Step 1: Project development. A developer builds a wind farm or solar installation in Texas. They secure land, permits, grid interconnection, and equipment.
Step 2: PPA negotiation. You negotiate a long-term contract to buy the project's output at a fixed price per MWh (e.g., $35/MWh with a 1.5% annual escalator).
Step 3: Physical delivery. The project generates electricity and delivers it to your ERCOT load zone. Your meter records delivery, and you are billed at the PPA rate for the delivered volume.
Step 4: Balancing supply. Because wind and solar output varies, you need a separate arrangement — typically with a REP — to supply electricity during hours when the project is not generating enough to meet your demand (nighttime for solar, calm-wind periods for wind). This is called the "firming" or "balancing" requirement.
Step 5: Surplus handling. When the project generates more than you consume (windy overnight periods, for example), the excess is sold back into the ERCOT market. The contract specifies how surplus revenue is shared.

Advantages of Physical PPAs

Simpler accounting. Physical PPAs are typically treated as executory contracts (normal supply agreements) rather than derivatives, which simplifies financial reporting.
Direct supply relationship. The electricity physically flows to your meter, creating a clear and tangible connection between the PPA and your consumption.
Reduced basis risk. If the project is located in or near your ERCOT load zone, the price difference between the project's settlement point and your load's settlement point is minimized.

Limitations of Physical PPAs

Geographic constraint. The project and your load should be in the same ERCOT zone to minimize delivery costs and congestion risk.
Firming cost. You still need a REP arrangement for hours when the project is not generating. This adds complexity and cost that must be factored into the total economics.
Volume mismatch. Your consumption pattern does not match the project's generation pattern. A solar PPA produces during daytime hours; your facility may operate 24/7. A wind PPA may produce heavily at night when your restaurant is closed.

Physical PPAs deliver electricity directly to your account, but the intermittent nature of renewable generation means you need a backup supply arrangement for hours when the project is not producing.

Virtual PPAs: The Financial Hedge Structure

A virtual PPA — also called a contract for differences (CFD), synthetic PPA, or financial PPA — is a purely financial arrangement. Unlike a physical PPA, no electricity is delivered to your account under the contract. Instead, the PPA functions as a financial hedge against wholesale electricity prices.

How Virtual PPAs Work Step by Step

Step 1: Separate physical supply. You continue buying your physical electricity from a REP under a standard retail contract, exactly as you do today.
Step 2: Financial settlement. The generator sells its output into the ERCOT wholesale market at whatever the market price happens to be. Separately, you and the generator settle the difference between the agreed PPA "strike price" and the actual market price for each settlement period.
Step 3: Settlement mechanics. When the market price exceeds the strike price, the generator pays you the difference — you profit from the hedge. When the market price falls below the strike price, you pay the generator the difference — the hedge costs you money. The settlement is financial only; no electrons change hands between you and the generator.
Step 4: REC transfer. The generator transfers Renewable Energy Certificates (RECs) to you, allowing you to claim the renewable attributes of the project's output for sustainability reporting purposes, even though you are not physically receiving the electricity.

A Concrete Virtual PPA Example

Your business enters a 15-year virtual PPA with a West Texas wind farm at a strike price of $32/MWh. Here is how settlement works in different market conditions:

The negative market price scenario is not hypothetical. ERCOT regularly sees negative real-time prices during periods of high wind generation and low demand — particularly overnight in spring. When the project generates during these hours, you are paying the full difference between the strike price and the negative market price. This is one of the most misunderstood risks of virtual PPAs.

Advantages of Virtual PPAs

Geographic flexibility. You can contract with a project anywhere on the ERCOT grid (or even out-of-state, though this increases complexity). Your physical location does not constrain project selection.
No change to existing supply. Your retail electricity relationship stays with your current REP. The PPA is a separate financial overlay.
Portfolio optimization. Multi-location businesses can enter a single virtual PPA that hedges the aggregate portfolio rather than negotiating physical PPAs at each location.
Larger project access. Virtual structures allow you to participate in very large utility-scale projects that offer the lowest per-MWh pricing.

Risks of Virtual PPAs

Virtual PPAs carry several risks that physical PPAs mitigate or avoid. These risks are financial in nature and can result in significant costs if not properly understood and modeled:

Basis Risk

This is the single most important risk factor in a virtual PPA. Basis risk arises from the difference in wholesale electricity prices between the project's location (settlement point) and your load's location (settlement point). The PPA settlement is calculated at the project's settlement point. Your retail electricity cost is influenced by prices at your load's settlement point.

In Texas, transmission congestion creates significant basis differentials. A wind farm in West Texas may sell into the ERCOT market at $20/MWh, while Houston hub prices are $45/MWh at the same moment. If your PPA settles at the West Texas node, your hedge is less effective — you are hedging against a price that does not reflect your actual cost.

Basis risk has historically been 10-30% of total PPA value for West Texas wind projects selling to Houston-area buyers. Over a 15-year term, this can represent millions of dollars in value erosion that was not reflected in the developer's initial proposal.

Shape Risk

Renewable projects generate electricity when nature allows — not when you consume it. This creates a "shape mismatch" between PPA settlement periods and your consumption pattern:

Wind PPAs: West Texas wind generation is strongest overnight and in spring — precisely when ERCOT market prices are lowest. Your PPA settles at these low-price hours, but you still need to buy electricity at higher prices during business hours when the wind is calm.
Solar PPAs: Solar generates during daytime hours, which are typically moderate-to-high price periods. However, solar output drops to zero by evening — if your business operates evenings or 24/7, you have no hedge coverage for those hours.

Shape risk means the average market price during your PPA settlement hours is often different from — and frequently lower than — the average market price during the hours you actually consume electricity. The PPA developer's pro forma often uses a simple average market price that does not reflect this shape mismatch, making the deal look more attractive than it actually is.

Long-Term Price Risk

A PPA locks you into a fixed strike price (with a small escalator) for 10-25 years. This is a two-sided bet on future electricity prices:

If wholesale prices rise significantly (due to gas price increases, carbon pricing, demand growth, grid constraints), your PPA becomes increasingly valuable — you are hedged at a below-market price while your competitors pay higher rates.
If wholesale prices fall significantly (due to abundant cheap renewables, low gas prices, technological breakthroughs, or demand destruction), your PPA becomes a liability — you are locked into paying the strike price when market alternatives are cheaper.

The renewable energy build-out in Texas itself creates this risk. As more wind and solar capacity comes online, it pushes wholesale prices down during hours when renewables generate — which are the same hours your PPA settles. This is sometimes called "cannibalization risk" — the very success of renewables depresses the prices that make your renewable PPA financially attractive.

Counterparty and Credit Risk

PPA developers evaluate your creditworthiness carefully because they need confidence you will honor a multi-decade payment commitment. They may require corporate guarantees, letters of credit, or cash collateral. Conversely, you need to evaluate the developer's financial stability — if the project company or its parent becomes insolvent, your PPA's value and REC delivery are at risk.

Most project companies are special purpose vehicles (SPVs) with limited assets beyond the project itself. If the project underperforms or the developer encounters financial difficulty, your recourse may be limited.

Basis risk — the price difference between where power is generated in West Texas and where it is consumed in Houston — is the most commonly underestimated risk in virtual PPAs and can erode 10-30% of contract value.

Who Are PPAs Right For?

PPAs are not appropriate for every business. They make sense when several conditions align simultaneously:

Sufficient Scale

Most PPA developers require a minimum offtake of 5-20 MW of peak demand or 40,000-175,000 MWh of annual consumption. This puts PPAs in range for:

Data centers — Typically 10-100+ MW with 24/7 flat load profiles that match well with blended renewable output.
Large manufacturing facilities — Multi-shift operations with annual consumption exceeding 50,000 MWh.
Multi-location chains — Aggregated load across 50+ locations (restaurants, retail, convenience stores) can reach PPA thresholds.
Hospital networks and university campuses — Large institutional loads with long occupancy horizons.

Single-location businesses consuming less than 500,000 kWh/month are generally too small for a direct PPA. However, aggregation platforms and "PPA-in-a-box" products are emerging that allow smaller buyers to participate in pooled structures, though with less customization and different risk profiles.

Long-Term Occupancy or Operations Commitment

A 15-year PPA requires confidence that your business will be operating at the contracted scale for the duration. Businesses in leased spaces with uncertain renewal terms, companies in volatile industries facing potential downsizing, or organizations considering relocation face significant risk from a long-term volume commitment. Exiting a PPA early involves termination payments that can run into millions of dollars, calculated based on the remaining contract value and current market conditions.

Financial Sophistication

Virtual PPAs in particular require organizational capacity to understand energy market mechanics, basis differentials, settlement procedures, and derivative accounting. Your finance team needs to be comfortable with mark-to-market valuation, hedge effectiveness testing, and potentially complex balance sheet treatment. If these terms are unfamiliar to your CFO, your organization may not be ready for a virtual PPA without significant advisory support.

Sustainability Goals With Additionality Requirement

PPAs provide the strongest form of renewable energy claim because your purchase directly enables the construction of new generation capacity — this is called "additionality." Unlike buying unbundled RECs from the open market (which supports existing projects), a PPA creates new renewable capacity that would not exist without your commitment. For organizations with ambitious ESG targets, RE100 commitments, or Scope 2 emission reduction goals, this additionality is the primary non-financial driver of PPA adoption.

Financial Modeling: How to Evaluate a PPA Properly

Developer proposals typically present a PPA in the most favorable light — showing the strike price against a rising wholesale price forecast and highlighting cumulative savings. A proper evaluation requires independent modeling that accounts for the risks above:

Step 1: Build a Counterfactual

What would you pay without the PPA? Model your electricity costs under a standard retail contract (fixed or variable) for the same term, including realistic assumptions about future retail rate increases. This is your baseline for comparison.

Step 2: Model PPA Settlements Against Actual Generation Profiles

Do not use simple annual average prices. Use hourly generation profiles for the specific project type and location (wind farms in the Texas Panhandle have very different output profiles than solar in South Texas) and hourly ERCOT settlement prices at the project's node. This reveals the shape risk — the average settlement price during generation hours versus the average market price during your consumption hours.

Step 3: Quantify Basis Risk

Calculate the historical basis differential between the project's settlement point and your load zone. Model scenarios where congestion worsens (more renewable build-out in West Texas without matching transmission expansion) or improves (new transmission lines). Basis risk should be modeled as a distribution, not a single number.

Step 4: Include Firming and Balancing Costs

For physical PPAs, include the cost of REP supply for hours when the project is not generating. For virtual PPAs, include the retail electricity cost from your REP (which you still pay in full) and net it against the PPA settlement payments.

Step 5: Stress Test Scenarios

Run the model under adverse conditions: wholesale prices 30% below forecast (renewable build-out accelerates), basis differentials double, project generates 20% less than forecast (poor wind or solar years), negative price hours increase. If the PPA still delivers positive value under stress scenarios, the economics are robust. If it only works under the developer's optimistic assumptions, proceed with extreme caution.

Step 6: Calculate Net Present Value (NPV) and Payback

Discount future cash flows at your company's weighted average cost of capital. A PPA that shows positive NPV under base-case and moderate stress scenarios, with a reasonable payback period (typically 5-10 years for the best deals), is worth serious consideration. A PPA that only shows positive NPV under the developer's optimistic price forecast is a speculative bet on electricity prices, not a procurement strategy.

Accounting Treatment

The accounting treatment of PPAs depends on their structure and can have significant balance sheet implications:

Physical PPAs are generally treated as executory contracts — recognized as operating expenses as electricity is delivered and consumed. No derivative accounting is required if the contract qualifies for the "normal purchases and normal sales" (NPNS) exception under ASC 815.
Virtual PPAs are typically classified as derivatives under ASC 815 (US GAAP) or IFRS 9. This means they must be recorded at fair value on the balance sheet, with changes in fair value flowing through earnings each period (mark-to-market). This can create significant earnings volatility that does not reflect the underlying economics of your business.
Hedge accounting may be available for virtual PPAs if you can demonstrate and document hedge effectiveness — linking the PPA to a specific forecasted purchase of electricity. Hedge accounting allows changes in fair value to flow through Other Comprehensive Income (OCI) rather than earnings, reducing income statement volatility. However, qualifying for hedge accounting requires rigorous documentation and ongoing effectiveness testing.

The accounting treatment should be evaluated with your finance team and auditors before signing. CFOs have rejected otherwise-attractive PPA deals because the earnings volatility from mark-to-market accounting was unacceptable to their board or investors.

Key Contract Provisions to Negotiate

PPA contracts are typically 50-150 pages of complex legal and commercial terms. While a full contract review requires experienced legal counsel, here are the provisions that matter most for your financial outcome:

Settlement point and methodology. Exactly which ERCOT settlement point is used for settlement calculations? Is it the project's node, a hub price, or a load zone price? The choice directly affects basis risk.
Curtailment risk allocation. When ERCOT curtails the project (instructs it to reduce output due to grid constraints or negative prices), who bears the cost? If you are still required to make settlement payments on curtailed volumes, you are taking on significant risk.
Performance guarantees. Does the developer guarantee a minimum annual generation output? What happens if the project underperforms its P50 forecast? Performance shortfall provisions protect you against project underperformance.
Termination provisions. Under what circumstances can either party terminate? What is the calculation methodology for termination payments? Is there a cap on your termination liability?
Change-of-law provisions. What happens if regulatory changes (new transmission charges, carbon pricing, renewable mandates) materially change the economics? Is there a renegotiation mechanism or a walk-away right?
REC delivery and vintage. Are RECs delivered monthly, quarterly, or annually? What vintage must they be? Can the developer substitute RECs from other projects if the contracted project underperforms?
Credit support. What collateral or credit support is required from each party? How is credit support recalculated as market conditions change?

Alternatives to Direct PPAs

If your business is interested in renewable energy procurement but does not meet PPA thresholds or prefers lower complexity, several alternatives exist:

Green retail plans. Many REPs offer electricity plans with bundled RECs, providing a simple way to claim renewable energy usage without PPA complexity. The additionality claim is weaker, but the operational simplicity is significant.
Aggregated PPA platforms. Platforms like Microsoft's, Google's, or third-party aggregators pool multiple smaller buyers into a single PPA, allowing participation at lower individual thresholds. Terms are less customizable than a direct PPA.
On-site generation. Rooftop solar, on-site wind (rare in commercial settings), or combined heat and power (CHP) systems generate electricity at your location, reducing your grid purchases. The economics depend heavily on your roof space, solar exposure, and utility interconnection costs.
Unbundled REC purchases. The simplest option — buy RECs on the open market to match your consumption. Lowest cost, weakest sustainability claim, no hedge value.

The Bottom Line

PPAs represent the most sophisticated tier of commercial energy procurement in the Texas market. For businesses with the scale (5+ MW), the long-term operational commitment (10+ years), and the financial sophistication to model and manage the risks, a well-structured PPA can deliver below-market electricity costs, meaningful sustainability credentials, and long-term price certainty that no retail contract can match.

For businesses that lack any of those prerequisites, the risks and complexity outweigh the benefits. A well-negotiated retail contract with a hedging strategy and a green energy component can achieve many of the same goals — price certainty, cost management, sustainability claims — with far less risk and a fraction of the legal costs.

The most important step in evaluating a PPA is getting independent advice before you sign. The developer selling the PPA has an interest in closing the deal. Your energy broker or advisor has an interest in making sure the deal works for you over the full contract term — not just in the developer's year-one pro forma.

< Older Post

Newer Post >

When to Renew Your Commercial Electricity Contract in Texas

May 9, 2026

Timing is everything in the Texas electricity market. The difference between renewing your commercial electricity contract at the right time versus the wrong time can amount to tens of thousands of dollars over the life of your agreement. Yet most Texas businesses treat contract renewal as an afterthought — something they deal with reactively rather than strategically. In a deregulated market like ERCOT , you have the power to choose your supplier and negotiate your terms. But that power is only useful if you exercise it at the right moment. This guide explains exactly when and how to approach your commercial electricity contract renewal for maximum savings. Know Your Contract End Date This sounds obvious, but it is the number one reason businesses overpay for electricity. The majority of commercial customers we work with do not know when their current electricity contract expires until it is too late. When your contract ends without a new agreement in place, one of two things typically happens — and neither one is good for your business: Auto-renewal at a holdover rate. Some contracts include a provision that automatically rolls you into a new term, but at a significantly higher rate. These holdover rates are rarely competitive — they are set by the REP without any negotiation, and they can be 20-50% above market rates. Month-to-month variable pricing. Without a contract in place, you default to a month-to-month variable rate that fluctuates with the wholesale market. This means you have no price protection during peak demand periods when electricity is most expensive. Both scenarios cost you money, and both are entirely avoidable. The fix starts with one simple action: find out when your current contract ends and put that date on your calendar — with a reminder set 120 days in advance. The 3-4 Month Rule The single most important tactical advice for contract renewal is this: start shopping 90 to 120 days before your contract expires. There are several reasons this timeline works: Forward pricing availability. Electricity suppliers offer forward pricing — rates locked in today for a future start date. These forward offers are typically available 30 to 120 days out. Starting early gives you access to the widest range of forward pricing options. Competitive leverage. When suppliers know you are shopping well in advance, they compete harder for your business. A business that calls one week before contract expiration has limited leverage because the supplier knows you are under time pressure. Time to compare. Evaluating bids from multiple suppliers takes time. You need to compare not just the headline rate, but the contract terms, fee structures, pass-through mechanisms, and early termination provisions. Our guide to fixed vs. variable rate electricity breaks down each option. Rushing this process leads to overlooked details that cost money. Market flexibility. Starting early means you can watch the market for favorable pricing windows. If rates are trending down, you can wait a few weeks. If rates are about to spike (heading into summer, for example), you can lock in before the increase. The Renewal Timeline 120 days out: Begin gathering your usage data and contacting brokers or suppliers. 90 days out: Review competitive bids and compare options. 60 days out: Finalize your selection and execute the contract. 30 days out: Confirm the switch is on track with your new supplier and ERCOT. Market Timing: When Are Texas Electricity Prices Lowest? The Texas electricity market follows predictable seasonal patterns driven largely by weather and natural gas prices. Understanding these patterns can help you time your contract renewal for the best possible rates. Generally, the best time to lock in a commercial electricity rate in Texas is between October and March. During this window, electricity demand is lower (mild weather means less HVAC load), natural gas prices — which drive the marginal cost of electricity generation in Texas — tend to be more stable, and suppliers are more willing to offer competitive forward pricing to secure volume for the coming year. Conversely, the most expensive time to sign a contract is during the summer months, particularly June through August. Wholesale prices are elevated due to peak cooling demand, and suppliers price their forward contracts to reflect the risk of extreme heat events. If you lock in a 24- or 36-month contract at summer peak pricing, you are paying an inflated rate for the entire term — not just the summer months. Timing your contract renewal to coincide with lower market periods can save your business thousands over the contract term. That said, the "best time" is a general guideline, not a guarantee. Unusual weather patterns, natural gas supply disruptions, changes in generation capacity, and regulatory developments can all move prices outside of their typical seasonal ranges. This is why ongoing market monitoring matters — and why working with a professional who tracks these factors daily is so valuable. Watch the Calendar, Not Just the Market Beyond general seasonal trends, several specific calendar events and market factors can significantly impact electricity pricing in Texas: ERCOT capacity and reserve margin reports. ERCOT publishes seasonal assessments of expected generation capacity versus demand. When reserve margins are tight — meaning the grid has less cushion between available supply and expected demand — forward prices tend to rise as suppliers price in the higher risk of scarcity events. Hurricane season (June-November). Gulf Coast hurricanes can disrupt natural gas production and electricity transmission infrastructure. The mere forecast of an active hurricane season can push forward prices higher as suppliers hedge against potential supply disruptions. Planned generation outages. Power plants schedule maintenance during lower-demand periods, but the timing and duration of these outages affects available supply. When multiple plants are offline simultaneously, prices can rise even during typically mild periods. Natural gas market movements. Since natural gas is the primary fuel for Texas electricity generation, significant movements in the Henry Hub benchmark directly impact electricity forward pricing. A cold winter that drives up natural gas demand nationally can raise Texas electricity prices even before summer arrives. Tracking all of these factors yourself is a full-time job. This is one of the core services an energy broker provides — continuous market monitoring so that when it is time to renew your contract, you are making a decision based on current conditions, not last month's assumptions. Early Termination: When It Makes Sense to Break a Contract Sometimes the smartest move is not waiting for your contract to expire — it is getting out early. If market rates have dropped significantly below your current locked-in rate, paying the early termination fee (ETF) and signing a new contract at lower rates can actually save you money over the remaining term. Here is how to evaluate whether early termination makes financial sense: Calculate your remaining cost. Multiply your current rate by your expected consumption for the remaining months of your contract. This is what you will pay if you stay. Get current market pricing. Obtain competitive bids for a new contract covering the same remaining period. Calculate what you would pay at the new rate. Add the ETF. Your current contract specifies the early termination fee — typically a per-kWh charge multiplied by your remaining expected usage, or a flat dollar amount. Compare totals. If the new contract cost plus the ETF is less than the cost of staying on your current contract, early termination is the financially rational choice. This calculation is straightforward in principle, but the details matter. Some ETFs are structured to decrease over the contract term, making termination more attractive as you approach expiration. Others have minimum charges that make early termination prohibitively expensive regardless of market conditions. An experienced broker can run these numbers for you and tell you exactly where the break-even point is. How a Broker Helps With Contract Renewals The businesses that consistently get the best electricity rates in Texas are not the ones who happen to get lucky with timing. They are the ones who have a professional managing their energy procurement on an ongoing basis. Here is what a good energy broker does for you around contract renewal: Tracks your contract dates. You do not need to set calendar reminders or dig through filing cabinets to find your contract terms. Your broker knows exactly when every agreement expires and starts the renewal process at the optimal time. Monitors market conditions. Instead of checking electricity prices yourself (which most business owners have neither the time nor the expertise to do meaningfully), your broker is watching daily market movements and will advise you on when conditions favor locking in a rate. Solicits competitive bids. Rather than calling individual REPs one at a time, your broker sends your usage profile to 25+ suppliers simultaneously, generating a competitive bidding environment that drives prices down. Reviews contract terms. The headline rate is only part of the picture. Your broker reviews the full contract for unfavorable terms, hidden fees, pass-through mechanisms, and termination provisions that could cost you down the line. Provides continuity. Your broker retains your historical usage data, knows your business's energy profile, and understands your preferences from previous renewal cycles. This institutional knowledge means each renewal is more efficient and better tailored than the last. All of this comes at no cost to your business — the broker is compensated by the supplier, not by you. A broker manages the entire renewal process — from market monitoring to contract execution — so you can focus on running your business. Take Control of Your Next Renewal Your commercial electricity contract is one of the largest controllable expenses in your business. Treating renewal as a strategic decision rather than an administrative task can save you thousands of dollars every year. The key principles are simple: know your contract end date, start shopping 90-120 days early, time your renewal to avoid peak market periods, and work with a professional who monitors the market and negotiates on your behalf. For more ways to reduce costs, see our guide to lowering commercial electricity bills . Businesses that follow this approach consistently pay less for electricity than those who let contracts auto-renew or wait until the last minute. If you do not know when your current contract expires, that is the first thing to fix.

Why Texas Businesses Use Energy Brokers Instead of Going Direct

May 9, 2026

Texas is one of the few states in the country with a fully deregulated electricity market. That means businesses operating within the ERCOT grid have the freedom to choose their Retail Electric Provider (REP) — a significant advantage that can translate into real savings on one of your largest operating expenses. But freedom of choice comes with complexity. There are more than 25 licensed REPs serving the Texas commercial market, each offering dozens of plans with varying rate structures, contract terms, and fee schedules. Navigating this landscape on your own is time-consuming, and without market expertise, it is easy to leave money on the table. That is why a growing number of Texas businesses — from single-location restaurants to multi-site industrial operations — work with energy brokers rather than going directly to providers. What Does an Energy Broker Actually Do? An energy broker acts as an intermediary between your business and multiple electricity suppliers. Rather than you contacting each REP individually to request pricing, your broker handles the entire process on your behalf. Here is how it typically works: The broker collects your usage data. This includes your historical consumption (usually 12 months of usage history), your current rate and contract terms, your meter information, and your TDU service area. The broker solicits competitive bids. Using your usage profile, the broker requests pricing from multiple suppliers simultaneously. This creates a competitive bidding environment — suppliers know they are competing against each other, which drives prices down. The broker presents your options. You receive a side-by-side comparison of bids from multiple suppliers, including the rate per kWh , contract length, rate structure ( fixed, variable, or hybrid ), and any fees or special terms. You choose. The broker explains the options and makes recommendations based on your business's needs, but the final decision is always yours. The broker manages the transition. Once you select a supplier, the broker handles the contract execution and coordinates with ERCOT for the switch. There is no interruption to your service. The most important thing to understand is that the broker is paid by the supplier, not by you. REPs build a small commission into their pricing to compensate the broker. This is the same commission structure that exists whether you go through a broker or not — when you go direct, the REP's internal sales team earns that same margin. Using a broker does not add cost to your bill.

Capacity vs. Energy Charges: Breaking Down the True Cost of Commercial Power

May 9, 2026

When most Texas business owners think about their electricity cost, they think about one number: the per-kWh rate. That number represents energy charges — what you pay for the volume of electricity you consume. But hidden beneath that headline rate is a second, often larger cost component that most businesses never scrutinize: capacity charges. These charges — which show up as demand charges , transmission demand fees, and various per-kW assessments — pay for the grid's ability to deliver power at your peak consumption level, regardless of how much total energy you use. Understanding the fundamental difference between energy and capacity costs is essential for commercial electricity buyers who want to move beyond surface-level rate shopping and actually control their total cost of power. This guide breaks down both cost components in depth, explains how each is calculated, identifies the trends driving each component, and provides strategies for managing both. The Fundamental Distinction Every dollar on your commercial electricity bill ultimately pays for one of two things: Energy Costs: Paying for Fuel and Generation Energy charges pay for the actual electricity you consume — the kilowatt-hours (kWh) that powered your lights, HVAC, equipment, and operations during the billing period. These charges reflect the cost of generating electricity: the fuel (natural gas, wind, solar), the operating costs of power plants, and the wholesale market dynamics that determine the price at which generators sell their output. Energy charges are volumetric — they scale directly with how much electricity you use. If you use twice as much electricity, your energy charges roughly double. If you shut down for a week, your energy charges drop proportionally. On your bill, energy charges typically appear as: Energy charge (per kWh) from your REP TDU energy delivery charge (per kWh) from your TDU Fuel factor or energy pass-through charges (on some contract structures) Capacity Costs: Paying for Infrastructure and Readiness Capacity charges pay for the grid's ability to deliver power at the rate you need it — measured in kilowatts (kW) of peak demand. These charges cover the physical infrastructure (transformers, substations, distribution lines, transmission towers) that must be sized to handle your maximum draw, the generation capacity that must be available to serve peak system-wide demand, and the ancillary services that keep the grid stable. Capacity charges are demand-based — they scale with the highest rate at which you consume electricity at any point during the billing period, not the total volume you consume. Two businesses can use the exact same total kWh in a month but pay dramatically different capacity charges if one draws power steadily and the other draws it in sharp peaks. On your bill, capacity charges typically appear as: TDU demand charge (per kW) — often the largest single capacity-related line item Transmission demand charge (per kW) — covering high-voltage transmission infrastructure REP demand charge (per kW) — some contracts include a supply-side demand component Coincident peak (4CP) charges — based on your usage during ERCOT system peak periods Capacity obligation or ancillary service charges — covering grid reliability requirements

How Restaurants in Texas Can Cut Electricity Costs

May 9, 2026

Restaurants are among the most energy-intensive businesses in the commercial sector. Between commercial kitchen equipment running at full capacity during service, walk-in coolers and freezers operating around the clock, HVAC systems battling Texas heat, and hood ventilation fans that never stop, electricity is often the second-largest operating expense for Texas restaurants — right behind labor. Our restaurants and food industry page covers how we help operators across the state. The good news is that operating in ERCOT's deregulated electricity market means you have options. Unlike states where a single utility dictates your rate, Texas restaurant operators can choose their commercial electricity supplier, negotiate their contract terms, and implement operational strategies that directly reduce what they pay. This guide covers the practical, high-impact actions you can take to bring those electricity costs down. Why Restaurant Electricity Bills Are So High Before you can fix the problem, it helps to understand why restaurants use so much electricity compared to other commercial businesses of similar size. The answer comes down to two factors: total consumption and peak demand. On the consumption side, restaurants operate energy-hungry equipment for extended hours: Walk-in coolers and freezers run 24 hours a day, 7 days a week. These are the baseline of your electricity usage, drawing power even when the restaurant is closed. Commercial ovens, fryers, and grills consume massive amounts of electricity during prep and service. A single commercial convection oven can draw 10-15 kW. HVAC systems work overtime in Texas, especially from May through September. The kitchen generates significant heat, so your cooling system is not just fighting outdoor temperatures — it is fighting the heat your own equipment produces. Hood ventilation systems are required by code to run whenever cooking equipment is in operation, and they pull conditioned air out of the building, forcing the HVAC to work harder. Lighting, POS systems, dishwashers, and ice machines round out a substantial base load that runs through every shift. All of this equipment running simultaneously is what drives the second factor — peak demand — which is where the real cost pain point lies for most restaurants.