During the 2011 drought, Texas electricity prices rose as generators with water-intensive cooling technologies cut back production. We investigate the effect of exceptional drought on electricity supply and emissions using a fixed-effects model on intra-hourly ERCOT data from 2010 to 2017. We find that the effect of exceptional drought on electricity supply varies with the cooling technology type used by the generator. Generators with water-intensive cooling technologies respond to exceptional drought conditions by raising their average offer prices. However, generators that use dry cooling technologies do not raise offer prices but do increase the total quantity offer during exceptional drought periods. These changes in offer prices lead to lower emissions plants being dispatched during exceptional drought in ERCOT. Given that exceptional drought intensity and duration are forecasted to increase over the coming decades, our findings provide valuable insights for state policymakers seeking to regulate the electricity market in our study area.
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