Texas grid to be tested once again this summer

Earlier this month, the Electric Reliability Council of Texas (ERCOT), released a warning that high demand and tight reserves, this summer, could increase the chance of energy alerts across the region.

The announcement coincided with the release of their final Seasonal Assessment of Resource Adequacy (SARA) Report for the spring (March thru May), and its preliminary assessment for the summer season (June through September). 

Declaring an energy alert allows the independent system operator (ISO) to take advantage of additional resources that are only available when scarcity conditions exist, including demand response products, adding generation, imports from neighboring grids, and calls for customers to reduce load. 

Representing roughly 90% of the Texas electricity market, ERCOT is forecasting a thin 7.4% reserve margin this summer. Between January, 2016 and today, the ISO set 16 new monthly peak demand records including an all-time system peak in 2016 and 2018.

The 7.4% reserve margin expected this summer is more than six percentage points lower than the optimal target of 13.8%.  

The summer 2019 peak demand forecast is for 74.9 gigawatts (GW), a new all-time peak if reached. Supply is forecast at 78.2-GW, of which roughly 83%, or about 65-GW, is from operational baseload and dispatchable hydro power facilities. 

The all-time ERCOT summer peak was set on July 19, 2018, at 73.3-GW.

Driven by both economic and population growth in Texas, electric demand in the region grew at 1.4%, from 401.9 million MWh to 407.6 million MWh in 2018. The 5.8 million MWh increase marked the third largest net increase in demand nationally, just behind Georgia (6.1) and North Carolina (6.0) during the year.

Adding to future growth, according to the SARA report, electricity demand, driven by the growing oil and gas industries in West Texas, is forecast to grow by 8% through 2023.     

Texas represents the largest electric market of any state in the U.S., with 10.7% of total electric demand nationwide. Florida represents the second largest market, accounting for 6.2%.

Texas is the largest power producing state in the U.S., with 459.4 million MWh generated in 2017, 11.2% of US total. Preliminary figures have Texas producing roughly 474.8 million MWh in 2018, estimated at 11.4% of the national total.

 Source: ABB Ability Velocity Suite

Eye on prices . . .

We’ll be paying close attention to the ERCOT market this summer, particularly to how prices rise when demand nears supply. Back in 2014, ERCOT introduced the Operating Reserve Demand Curve (ORDC) to ensure wholesale power prices accurately reflect supply shortages. 

The ORDC adder activates when reserves shrink to 6.0-GW and continue downward, with a maximum price adder when the market’s reserves reach 2.0-GW. The price adder reflects the “value of lost load” if the system exceeds capacity and utilities need to shed load. 

The ORDC incents power producers to bring expensive less efficient generators onto the grid at extremely profitable clearing prices. Prices can rise to a cap of $9,000/MWh when the ORDC is implemented – substantially higher than average ERCOT power prices in the $30/MWh to $40/MWh range.

Exacerbating the market volatility during peak events, is the relatively large quantity of operating wind farms in Texas, with more than 25% of the installed wind capacity in the U.S. at 24.4-GW.

Source: ABB Ability Velocity Suite

Currently there are 5.5-GW of projects, primarily wind and natural gas, under construction in the state – all expected online by the end of 2020.

According to the SARA assessment, only 162-MW of new wind and 172-MW of new solar capacity will be added before the summer peak season. This comes in light of yet another announcement of a coal-fueled power plant shutting down.

Coal closures continue . . . 

Over the three-year period, from 2016 through 2018, more than 5.0-GW of coal-fired capacity was shuttered within the ERCOT market. This year, the Texas Municipal Power Agency’s, Gibbons Creek coal plant (454-MW), currently mothballed, will be retired. 

In 2020, the jointly owned, American Electric Power operated, four unit Oklaunion coal power plant (720-MW) is scheduled for closure. Late last year, the two-unit J.T. Deely plant (932-MW), operated by CPS Energy, was decommissioned.

Source: ABB Ability Velocity Suite

In 2018, these three facilities generated 8.7 million MWh, with 5.3 million MWh from Gibbon’s Creek and J.T. Deely, which will not be available later this summer.

In 2017, coal-fueled power plants generated 134.6 million MWh, accounting for nearly 30% of all power generation in the state of Texas. When the final figures are tabulated for power generation in 2018, coal-fueled power is expected to represent around 25% of all Texas power plant production, still a significant contribution to the state’s fuel-mix.       

Along with the recently released SARA Report, the Texas Public Service Commission announced it is coordinating with the Railroad Commission of Texas, to ensure gas power plants have available gas when times get tight later this summer. Natural gas accounts for roughly 50% of total electric output in Texas.

This summer, driven by growth in electric demand, hot weather and relatively low reserves; scarcity events within ERCOT could drive prices sharply upward, helping generating units, which are often out of the money, become highly profitable.

Web Page: ABB Regional Energy Market Report

Web Page: ABB Power Plant Report

Web Page: ABB ISO Monthly Update Report

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