ERCOT Demand – A Frisson of Excitement

ERCOT released its May 2024 Capacity Demand and Reserve report recently, and the findings have been nothing short of fascinating. Historically, ERCOT has seen significant demand growth driven by various factors, including oil and gas drilling, residential loads, new coastal LNG export ports, and crypto mining. Texas has emerged as a magnet for new demand and renewable development. Over the past two years, the overall peak demand has increased with a CAGR of 8%, while energy demand has grown with a CAGR of 16%. Looking ahead, the ERCOT region is forecasted to experience tremendous electric demand growth in the next 5-7 years, necessitating a new era of planning to address long-term challenges and highlight future opportunities.

Load Growth in the ERCOT System

Historically, regional transmission planning rules did not allow ERCOT to factor in unassigned load, which created a gap in planning. Additionally, ERCOT did not count large new loads in their planning process until they provided financial security, usually close to when the customer needed power. This approach did not facilitate long lead-time transmission projects. Furthermore, ERCOT imposes limits on utilities' load forecasts, but many existing loads are electrifying their facilities, creating new electrical demands on a short timeline. This reactive planning often leaves customers waiting for power, creating a chicken-and-egg problem, particularly for larger customers.

House Bill (HB) 5066 aims to encourage a more proactive approach by requiring ERCOT, the Public Utility Commission of Texas, and utilities to plan the grid based on the information utilities have about load growth in their area. HB 5066 requires ERCOT to include prospective load identified by Transmission Service Providers (TSPs), leading to significant increases in large loads considered in studies, such as crypto mining, hydrogen manufacturing, data centers, and electrification.

The new methodology resulted in nearly 52.7 GW of additional load forecasted by 2029. This additional load forecast brings more growth, opportunities, and challenges to the ERCOT grid. This substantial increase underscores the need for innovative solutions and infrastructure upgrades to accommodate the burgeoning demand.

Embracing Future Challenges and Seizing Opportunities

Over the past decade, the ERCOT market peak has grown by a CAGR of 2.5%, but in recent years, this market has shown a growth rate of 8%. Including just the contracted loads from the CDR, this market is expected to grow with a CAGR of 5%. If non-contracted loads are included, this market could grow at a CAGR of 10% by 2030. This growth rate raises critical questions: Will the generation mix expand at the same pace? Will we have sufficient transmission infrastructure to support both generation and load growth? The new load forecast in ERCOT creates significant investment opportunities for balanced generation growth to serve this demand effectively.

Lineup for Generation Interconnection

As of June 2024, there are nearly 1813 interconnection requests, totaling approximately 355.3 GW of generating capacity. Most of the Generation Interconnection System (GIS) is filled with solar and battery projects, with 154 GW and 149 GW respectively. With the Texas Energy Fund approved last year, we anticipate seeing increased traction in gas generation in the coming years. Despite the new load, most of which will be large flexible or flat loads, the GIS shows only 33 GW of active wind projects. Wind energy lost its appeal in the market in the early 2021-2022 period when the Production Tax Credit (PTC) benefits for new plants were set to expire by 2025. This was before the Inflation Reduction Act (IRA) era.

Additionally, wind energy faced significant congestion issues due to its high penetration and the lack of an adequate transmission network. However, with changing market dynamics and increased load during off-peak hours, a diversified portfolio of generation, including increased wind or thermal penetration, will be necessary. The current interconnection queue must evolve rapidly to ensure a balanced supply mix capable of meeting the new load forecast.

Transmission Upgrades – Challenges and Complexities

Demand is escalating as new large loads are added to the ERCOT system faster and in greater sizes than historical interconnections. The current generation mix is more diverse, can be built faster, and is more geographically dispersed from load centers. However, transmission still requires 3-5 years to be energized. The forecasted pace of load growth could exceed the pace at which transmission capacity can be built to support it.

As load and generation both take nearly the same time to come online, transmission lags behind, leading to congestion issues and curtailment of generation assets. During extreme weather conditions, this could lead to critical situations, similar to the 2021 Uri event, where vast areas experienced outages. Running transmission models with expected load increases would provide insights into new reliability projects or necessary system upgrades, enhancing system efficiency. ERCOT has established processes to connect generation and load, ensuring they align with the forecasted growth pace, thereby maintaining a sustainable and reliable grid.

Strategic Considerations for the Future

The ERCOT region is on the cusp of significant changes, driven by substantial demand growth and the need for proactive planning. Here are some strategic considerations to navigate this evolution effectively:

1. Enhancing Grid Resilience: Investing in grid resilience and flexibility is crucial. This includes upgrading infrastructure, enhancing grid management technologies, and developing advanced predictive models to anticipate and mitigate potential disruptions.
2. Diversifying the Generation Mix: Ensuring a balanced generation mix that includes solar, wind, gas, and thermal power is essential. This diversification will help manage supply reliability and reduce dependency on any single energy source, making the grid more resilient to fluctuations in supply and demand.
3. Expanding Transmission Capacity: Accelerating the development of transmission infrastructure to keep pace with generation and load growth is imperative. This involves streamlining regulatory processes, securing funding, and fostering public-private partnerships to expedite transmission projects.
4. Incentivizing Clean Energy Solutions: Leveraging state and federal incentives to promote the adoption of clean energy technologies, such as energy storage, hydrogen production, and advanced grid management systems, will help transition to a more sustainable energy landscape.
5. Engaging Stakeholders and Community Involvement: Engaging with stakeholders, including local communities, industry players, and regulatory bodies, is vital for fostering collaboration and gaining support for new projects. Transparent communication and community involvement can facilitate smoother project approvals and enhance public acceptance.

With balanced investment in generation and transmission, ERCOT can continue to power Texas's dynamic and growing economy effectively, ensuring a reliable, sustainable, and resilient energy future. The road ahead is challenging, but with strategic planning and collaborative efforts, ERCOT is well-positioned to meet the demands of tomorrow.

Source:

ERCOT - 2024 May CDR Resource Adequacy (ercot.com)

ERCOT - June 2024 GIS Resource Adequacy (ercot.com)