Texas power grid operator expects record peak demand, tight conditions

The Electric Reliability Council of Texas has forecast a new record peak demand of 76,696 MW in the summer of 2020, and tight conditions, with just 82,417 MW of resources likely to be able to meet that demand, a report released Thursday showed.

The Preliminary Seasonal Assessment of Resource Adequacy's forecast peakload for the summer period of June-September 2020 rose from ERCOT's record peakload of 74,820 MW, set August 12, but was the same as forecast in December's biennial Capacity, Demand and Reserves report.

"ERCOT has added new electric supply resources, and strong economic growth continues to push up demand in ERCOT," ERCOT President and CEO Bill Magness said. "We expect grid operations to be very similar to last summer."

The 82,417 MW of resources available to meet demand marked a slight increase from the 82,403 MW included in December's CDR report.

PRICING EFFECTS

Travis Whalen, a power market analyst at S&P Global Platts Analytics, said the report was not surprising, as "the numbers seem pretty well in line with the December CDR."

"This report doesn't significantly change our outlook," Whalen said. "We continue to expect high summer prices, but notably lower than last year."

Manan Ahuja, Platts Analytics' senior director of North American power, said his organization foresees summer prices to be likely below current market expectations.

On Intercontinental Exchange, the ERCOT North Hub July-August 2020 on-peak package was trading up about $1 after the SARA release, in comparison with Wednesday's ICE settled price of $136.25/MWh.

ERCOT declared two Energy Emergency alerts in the second week of August, as a heat wave boosted demand while resources were reduced, partly by generation outages, which reduced physical reserves below 2,300 MW. In an EEA status, ERCOT can use certain resources not otherwise available, such as its Emergency Response Service, a program in which ERCOT compensates loads for agreeing in advance to curtail power demand.

The final SARA for summer will be released in early May and reflect expected summer weather conditions as well as generation that has since achieved commercial operation.

The preliminary SARA included several scenarios, varying the amount of resources available by various factors such as extreme outages and varying the amount of demand by extreme weather. In all of the scenarios that varied from typical outages and forecast seasonal weather, ERCOT forecast a resource shortfall, ranging from as little as 1,280 to as much as 3,650 MW.

"Last year had shortfalls in all four scenarios, and prices obviously blew out then, but 2018 also had shortfalls in three out of four scenarios without a blowout," Whalen said in an email. "There's cause for concern about price spikes in this market as a rule at this point because reserve margins are so heavily dependent on intermittent resources."

ERCOT is likely to face the risk of firm load shedding, Whalen said, "but the positive correlation between high load and high solar output (and wind to a lesser extent) provides some protection."

CORONAVIRUS A RISK FACTOR

The preliminary summer SARA counts 2,198 MW of projects under construction as firm capacity, with the renewables discounted for their likely ability to be online during peak hours. Only 101 MW of that planned capacity is dispatchable thermal. Some of this 2,198 MW could be delayed beyond the June 1 beginning of summer, "the risk of which could certainly be exacerbated by the [coronavirus disease-] related issues," Whalen said.

"Those are more likely to be supply chain related at this point, but work stoppages are also impossible to rule out," Whalen said.

The coronavirus outbreak might also have a mitigating effect on peakload, "if a significant outbreak forces industrial closures or reduced global LNG demand slows output from facilities [along the Gulf Coast]," Whalen said.

During a media call Thursday afternoon, Warren Lasher, ERCOT director of system planning, said of the coronavirus and its accompanying disease, COVID-19, "I don't think we can say today that there's any potential impact to customer demand."

ERCOT has been communicating with generation developers regarding projects expected to be online by summer, Lasher said. "We have not been notified of any delays at this time."

ERCOT is monitoring the situation and will provide updated information when the final summer 2020 SARA is released, along with the next biennial CDR, in early May, Lasher said.

"COVID-19 could lower loads by a good deal," said Neil McAndrews, an energy market consultant based in Austin, Texas.

"Marginal gas prices could be lower, and demand could be lower," McAndrews said, adding that these could affect power prices.

ERCOT also released its final spring SARA report, in which ERCOT forecast sufficient generation to meet systemwide demand under various extreme conditions. The spring SARA assumes power demand to peak at 64,233 MW, while resources are expected to total 85,575 MW.

"The reserve margins for the extreme outage scenario are significantly improved this year despite notably higher loads and higher potential outages," Whalen said. "Once again, ERCOT is pretty reliant on wind here, but the situation seems overall less likely to result in price spikes than last year."

On ICE, the ERCOT North Hub April and May on-peak packages traded down about 5 cents compared with Wednesday's weighted-average prices of about $24.75/MWh and $28/MWh, respectively.