The Electric Reliability Council of Texas market has encountered multiple tight supply periods in August as solar output diminished at nightfall occasionally without wind output ramping up -- plus, more recently, because of thermal generation outages, ERCOT's board members learned Aug. 31.
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The situation may not improve quickly, as regulatory and legislative uncertainty at the federal and state level may be deterring gas-fired generation development, ERCOT's independent market monitor said.
ERCOT President and CEO Pablo Vegas said Texas power consumers' response to requests to conserve energy enabled the grid to avoid declaring Energy Emergency Alerts so far this summer, despite setting 10 peakload records, most recently 85.4 GW on Aug. 10.
In comparison with summer 2022's all-time peak of 80.1 GW, the increase has been more than 5 GW, Vegas said, about 7% growth year on year, compared with nationwide annual load growth averaging about 1% since the early 2000s.
Texas' energy demand reflects the growing Texas population and economy, which bring with them "demands on infrastructure in highways, schools and energy," Vegas said.
"I don't think anybody expects the growth to slow down meaningfully," Vegas said.
The new ERCOT Contingency Reserve Service, designed to provide enough resources to fill gaps when intermittent or thermal resources unexpectedly underproduce, has helped, Vegas said.
"The last seven or eight days have been a little bit of a different story," Vegas said.
In most of the summer, wind has ramped up as solar output diminished at nightfall, which "has aligned well with the demand profile," Vegas said. Also, the state's thermal dispatchable fleet has delivered "a very strong and steady performance," he said.
Conservation calls issued
"But that changed on Aug. 17 ... when we had a conservation call," Vegas said.
As wind output failed to ramp up in the evening, ERCOT used every ancillary service available plus the Emergency Reserve Service, typically saved for just before an EEA is declared, Vegas said.
"On that day, we came within amount 600 MW or so ... to enter into emergency operations, and that's against the peak demand of almost 85,000 megawatts," Vegas said. "We have seen seven, I believe, voluntary conservation appeals since that day."
The first four of those days were primarily linked to low wind output, but the last few days have featured more thermal outages, Vegas said.
"Coming off a long stretch of very high demand and high utilization, it's not surprising to see some mechanical breakages happening on some of the dispatchable generation fleet," Vegas said. "So, that's what we experienced at the first part of this week."
For all of August, ERCOT's real-time systemwide hub prices have exceeded $1,000/MWh on 19 days for a total of 36.75 hours, including 2.5 hours at the $5,000/MWh systemwide offer cap.
These price spikes have contributed to ERCOT's Peaker Net Margin setting its second-highest level on record, $197,322/MW, said Carrie Bivens, head of Potomac Economics' independent market monitor office for ERCOT. This total is second only to 2021's $768,974/MW, Bivens said. The PNM in 2022 was $165,520/MW, and the PNM has exceeded the current estimate of the net cost of new entry, $105,000, each year except 2020 over five years.
The PNM represents cumulative net income for a hypothetical natural gas-fired peaking generator based on current real-time power and spot gas prices. It is used to evaluate the profitability of the ERCOT market.
"Theoretically, since we've had peaker net margin that is higher than the new entry value over five years, somebody should have planted some capital in the ground to build a new plant," Board Vice Chairman Bill Flores said. "How do we reconcile this chart versus the fact that we've had really no net new peaker capacity added?"
Reasons for slow thermal development
As of the end of July, the latest date for which complete information is available, ERCOT had 68.3 GW of gas-fired generation operational, ERCOT's Generation Interconnection Status reports show. At the end of 2018, ERCOT had 65.4 GW. Two gigawatts of that 2.9-GW increase has been peaker.
Bivens said "certainly the market signals are there for cost of new entry," but the $105,000/MW may be an underestimate of actual cost.
"Some of it is that because we're getting so many [GW] in solar and batteries," Bivens said. "Those are the most economic units, given the energy-only market design."
Another factor may be regulatory uncertainty, Bivens said.
"There's a lot of changes that are happening at the regulatory level, at the legislative level, and that's been going on for several years," Bivens said. "It's hard to make those huge capital investments without knowing where it's going to settle."
However, Bivens said ERCOT's market outcomes likely will result in more gas-fired resources.
"Investors don't tend to leave tons of money on the table for too long, so I'm optimistic that we're going to see some results," Bivens said.