ERCOT Again Expects Tight Summer 2020 Conditions

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Despite adding 513 MW of new capacity this year alone, the Electric Reliability Council of Texas (ERCOT) expects tight grid conditions this summer, and it warned it could declare an energy emergency depending on a combination of factors.

Citing its newly released preliminary Seasonal Assessment of Resource Adequacy (SARA) assessment for the summer season (June-September), the independent system operator (ISO) that manages 90% of the state's electric load, said on March 5 it is anticipating record electric use this summer owing to strong economic growth in its region.

While it expects that total resource capacity for the upcoming summer season will hover at 82,417 MW, the preliminary SARA report suggests a 76,696 MW summer peak load forecast based on normal summer peak weather conditions from 2004 to 2018. Since December 2019, 348 MW of new wind, 88 MW of new gas, and 77 MW of new solar have been added to the grid in preparation for the summer.

However, as ERCOT President and CEO Bill Magness noted last week, the grid entity still expects grid operations will "be very similar to last summer." As in 2019, "the need to declare an energy emergency will depend on a combination of factors, including demand, wind output and the number of generators on outage on any given day," ERCOT said, noting that the entity and market participants "are taking steps to ensure system reliability can be maintained during tight conditions."

The warnings are notable because ERCOT experienced dizzying grid conditions over the summer of 2019 that set two all-time records for system demand peak (of 74,666 on Aug. 12, 2019) and weekend system demand peak (of 71,915 MW on Aug. 11, 2019), and forced the entity to issue two Level-1 Energy Emergency alerts. While overall, market outcomes supported reliability needs, the tight conditions sent real-time prices soaring, reaching $9,000 on Aug. 13 and 15.

Conditions in ERCOT have improved somewhat. ERCOT has been preparing for tight operating reserves owing to a spate of recent plant retirements-including of major coal baseload generators-and delays in some planned resources. Compared to the dismal 8.6% planning reserve margin it reported as it entered the 2019 peak demand season, the entity's December Capacity, Demand and Reserves (CDR) Report forecasted the planning reserve margin for summer 2020 will be 10.6%. Margins are slated to grow through 2024, when they will reach 12.9%.

The planning reserve margin for summer 2020 is forecast to be 10.6%, based on resource updates provided to ERCOT from generation developers and an updated peak demand forecast. This is 2% higher than the 8.6% reserve margin ERCOT reported as it entered the summer 2019 peak demand season. Courtesy: ERCOT

For some Texas generators, at least, the tight conditions offer opportunity. In a fourth quarter and full year 2019 earnings call on Feb. 27, NRG Energy President and CEO Mauricio Gutierrez noted that electric demand in the region is continuing to grow at the fastest pace in the nation-of between 2% and 3% per year "for the foreseeable future." He told investors: "Now as you all know the direct result of this robust " growth is a record-high supply and demand balance for reserve margin. This requires a tremendous amount of generation investments simply to maintain the current low reserve margin."

As a major market participant, NRG was reacting to the conditions by facilitating "solid new builds to improve reliability and rebalance our portfolio by entering into medium-term [power purchase agreements (PPAs)]," he said. "These PPAs enabled the developers to obtain cost effective financing and tax equity to economically develop the project. And for us they complement our generation profile, lower our cost structure and allows us to better serve our customers."

The spring SARA includes a 64,233 MW spring peak load forecast. The final summer SARA report will be released in early May and will reflect the expected summer weather conditions.

-Sonal Patelis a POWER senior associate editor (@sonalcpatel, @POWERmagazine)

The post ERCOT Again Expects Tight Summer 2020 Conditions appeared first on POWER Magazine.