ERCOT summer assessment cuts peakload forecast by 1.5 GW, boosts reserve margin to 12.6%

Houston — Although the Electric Reliability Council of Texas has cut its projected load forecast by 1,496 MW and raised its expected summer reserve margin to 12.6% because of the coronavirus pandemic, the grid operator Wednesday said it still expects to set a peakload record, drawing conflicting responses from industry analysts.

ERCOT released its final Seasonal Assessment of Resource Adequacy for summer 2020, June through September, projecting a peakload forecast of 75,200 MW, which would exceed the previous record of 74,820 MW set on August 12, 2019.

ERCOT on Wednesday released its final Seasonal Assessment of Resource Adequacy for summer 2020, June through September, projecting a peakload forecast of 75,200 MW, which would exceed the previous record of 74,820 MW set on August 12, 2019.

Travis Whalen, a power market analyst at S&P Global Platts Analytics, was surprised by the big drop in the summer 2020 peakload forecast, but Campbell Faulkner, senior vice president and chief data analyst at OTC Global Holdings, an interdealer commodity broker, indicated surprise that ERCOT still forecasts setting a new peakload record.

Whalen said he was "pretty shocked" that the forecast was for a 2% peakload cut, when that has been about the extent of peakload cuts during the most stringent period of Texas' stay-home order.

"I'm not really sure how we could expect a comparable reduction in peaks two or three months down the road, unless the expectation is that we've yet to see some of the largest economic andload impacts or the true impact was masked by the low shoulder season demand," Whalen said. "I suppose that's not out of the question, but it seems like an aggressive assertion."

In contrast, Faulkner said he is "extremely surprised at how bullish the expected power demand will be this summer."

"While ERCOT could set records, it seems farfetched even with very hot weather given that large parts of the state most likely won't be at 100% open during July-August," Faulkner said in an email. "The economic damage to the petroleum industry (and its manufacturing component) when combined with low consumer confidence leads me to think this summer peak demand won't blow past last year's all-time high."

But during a media call, Pete Warnken, ERCOT manager of resource adequacy, said ERCOT expects this summer to be unusually hot, and the National Weather Service's latest forecast for June, July and August indicates enhanced probability -- 40% to 70% -- of hotter-than-normal temperatures for the period.

PANDEMIC'S PRICING IMPACTS

Nevertheless, Faulkner noted that the July-August on-peak forward strip has been trading steadily lower since the end of 2019, adding, "I am inclined to think that the strip will ultimately trade lower."

Joshua Rhodes, a research associate at the University of Texas' Webber Energy Group, said the change in the calculation of ERCOT's Operating Reserve Demand Curve, which is designed to provide a systemwide price adder more frequently and at higher levels during supply constraints, could make power pricing this summer "interesting to watch."

"Prices could still get high, but won't bet as high as they would have been without COVID-19," Rhodes said.

ERCOT's forecast also implies a summer 2020 reserve margin of 12.6%, up from the 10.6% projected in December's Capacity, Demand and Reserve Report, but even the new reserve margin is less than the 13.75% target reserve margin set by the Public Utility Commission of Texas as a minimum to ensure that a capacity-related forced outage occurs no more often than one day in 10 years.

Under expected demand and operating conditions, ERCOT should have sufficient generation, but extreme weather, low wind output and higher-than-normal generation outages could force the grid operator to declare Energy Emergency Alerts. Under those conditions, ERCOT can take various steps, up to and including rolling blackouts, to ensure the longer-term reliability of the system.

"There is a lot of uncertainty in today's world, but we are confident that Texas will still be hot this summer," ERCOT President and CEO Bill Magness said in a statement. "Texans will need electric power as they do every summer, and ERCOT is prepared to do our part to keep it flowing reliably."

NEW GENERATION SINCE DECEMBER

Since the December CDR, 2,273 MW of capacity has been approved for commercial operation. Since most of it is wind and solar, the amount that is included as capacity likely to be available during the summer peak is just 790 MW.

ERCOT also released its May CDR, which covers the years 2021 through 2031, but it "reflects pre-COVID load forecasts due to the high level of uncertainty in how the pandemic will affect future years," the news release stated.

"ERCOT will continue to monitor changes and make adjustments as needed, and a special tab was created in the report to show how COVID-19 could impact peak demands and planning reserve margins through 2024," the news release said.

Manan Ahuja, Platts Analytics senior director of North American power, said, "Given that we are already seeing recovery in loads to pre-COVID trajectory in ERCOT, it is likely prudent to exclude pandemic impacts on 2021 and beyond load forecasts."

However, OTC Global's Faulkner said, "Unfortunately, until there is either herd immunity or a vaccination for COVID-19, the lack of business confidence appears to crimp economic activity and investment well into the 2021 time frame."

Despite the new CDR's substantial growth in summer peakloads - 78.3 GW in 2021, for example - the reserve margin is expected to jump to 17.3% in summer 2021 and 19.7% by summer 2022, before slowly falling afterward.