Analysis: Industry observes split over ERCOT load reductions impact on summer pricing

Industry observers are divided over whether the Electric Reliability Council of Texas' energy-only market's all-important summer pricing will be significantly moderated this summer, if Texas' coronavirus stay-at-home advisory has long-term effects on the state's economy.

On Tuesday, ERCOT announced that its load analysis shows that morning power demand curves have averaged 6 to 10% lower during typical morning ramp times of 6 am to 10 am, "directly related to COVID-19," which ERCOT started monitoring the week of March 8.

"The overall load reduction for the ERCOT region has leveled off over the past two weeks," said Calvin Opheim, ERCOT manager of load forecasting and analysis. "Based on the data analyzed from the weeks of March 22 and 29, weekly energy use is down by approximately two percent."

Asked how this phenomenon might affect ERCOT's wholesale power prices this summer, Joshua Rhodes, University of Texas Energy Institute research associate, described it as "the $64,000 question."

"I think that, if we are still mostly working form home with businesses shut down during the summer, residential peak demand will be higher, but commercial and industrial will be lower, with overall demand lower as a result," Rhodes said Wednesday. "But if we are still in this current state in three months, we might have even less load as the economy will no doubt have taken a huge hit."

But Travis Whalen, an S&P Global Platts Analytics power market analyst, expressed doubt that "the currently observed load patterns will have any impact on summer power prices, simply because they're unlikely to persist throughout the summer peak periods."

"That said, there's certainly the potential for reduced year-over-year growth as a result of the economic damage," Whalen said Tuesday. "Many businesses that are attempting to make it work now could very well close by the time this summer comes around. Ultimately, though, enough of the growth is population-based to still present significant risks for summer blowouts in the right circumstances."

'TEPID JULY, AUGUST PRICES'

In contrast, Campbell Faulkner, senior vice president and chief data analyst at OTC Global Holdings, an interdealer commodities broker, said: "The overall load should exhibit lower peaks for the foreseeable future, even with very warm temperatures, due to lower commercial and industrial demand.

"This summer's peakload and the grid conditions will be determined by the larger economic recovery (if one happens at all) and ... should see relatively tepid July August prices," Faulkner said in an email Tuesday. "That is entirely linked to the overall economic activity and not the base load requirements from households and other essential services."

ERCOT plans to reveal any changes to this summer's peakload forecast when it releases its final summer 2020 Seasonal Assessment of Resource Adequacy and biennial Capacity, Demand and Reserves Report in mid-May. A specific release date has not been announced yet.