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ERCOT 2021 outlook: More volatility, demand, renewables, generation retirements


Intermittent resources' share increasing

725 MW announced retired so far

  • Author
  • Mark Watson
  • Editor
  • Rocco Canonica
  • Commodity
  • Coal Electric Power Natural Gas

Houston — Traders in the Electric Reliability Council of Texas power markets are likely to face increased volatility in 2021 and possibly higher on-peak power price spikes, in part because of record high summer peakload and higher expected gas prices, industry observers said Thursday.

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ERCOT North Hub forward indexes for January through December 2021 on Dec. 16 averaged 35.7% above the monthly average day-ahead on-peak locational marginal prices for the corresponding months of 2020, according to the S&P Global Platts database. Forward indexes exceeded 2020 average LMPs in all but two months.

Houston Ship Channel gas forwards for January through December 2021 on Dec. 16 averaged 39.8% higher than the monthly average spot gas for the corresponding months of 2020. Gas forwards exceeded 2020 average prices in every month.

If these forward indexes are accurate representations of traders' thinking of the likely physical trading of power in the corresponding months, those traders perceive significant upside risk for power prices in 2020.

Such upside risk reflects the possibility of resurging power demand, higher gas prices, intermittent resources becoming unavailable during peak periods and more fossil-fuel plants retiring in the face of 2020's relatively bearish power price record.

Bearish prices in 2020

ERCOT's average daily peakload in 2020 was about 0.4% less than in 2019, but the day-ahead on-peak LMPs in 2020 were 45.3% less than in 2019.

Manan Ahuja, S&P Global Platts Analytics senior director of North American power, noted in a Dec. 17 email that the percentage of renewables in ERCOT's generation "has been steadily increasing."

"So, the risk of generation swinging is higher when wind speeds vary a lot intra-day," Ahuja said, but added that Platts Analytics' price forecast is "significantly lower than the [forward] market prices."

ERCOT's Capacity, Demand and Reserves Report contains a forecast to hit a new record peakload of 77.2 GW, up from August 2019's record of 74.8 GW. Platts Analytics forecasts ERCOT peakload to hit a record, but at a more modest level, 76.8 GW.

"I think ERCOT peak load forecast is pretty realistic with both a return from post-COVID and also the in migration of ERCOT/Texas as a desirable business location," said Jeff Schroeter, managing director, generation developer and market advisor at Genova Power Advisors in Plano, Texas. "This correlates to the house construction boom in [Dallas-Fort Worth]. I could see recovery growth biased to the second half of 2021."

Schroeter said in a Dec. 17 email that he expects oil-and-gas exploration and production to resume growing in West Texas' Permian Basin and for LNG exports on the Texas Gulf Coast to be "an economic bright spot, even with a new administration as it helps US foreign trade balance."

ERCOT's Dec. 16 CDR projected a planning reserve margin of 15.5% in the summer of 2021, which is the highest level since 2017, but less than the May CDR's projected 17.3% for summer 2021.


"It is entirely possible that we see more retirements, given the reserve margins are expected to be about 17% (our forecast), and prices have been weak and will likely be weak next year, too, if reserve margins stay at those levels," Platts Analytics' Ahuja said.

This autumn, the following generation retirements were announced:

  • The Texas Municipal Power Agency decided in September to decommission the idle 420-MW Gibbons Creek coal-fired power plant.
  • Luminant announced plans to retire the 235-MW natural gas-fired Trinidad Power Plant by April 29.
  • Luminant also announced plans to retire the 69-MW gas-fired Wharton County Generation plant, which previously ceased operations due to a forced outage.

"I think most of the upcoming [retiring] plants have been announced," Genova's Schroeter said. "Some next additions to the retirement list would be remaining older inefficient or inflexible gas generation. I'd put more weight on short startup times than high heat rates as a decision factor going forward."