Outlook 2023: ERCOT grapples with reliability as solar, batteries surge

More electric generating capacity is scheduled to connect to Texas' main wholesale grid in 2023 than during the previous two years combined, with developers planning to energize up to 18.5 GW of mostly renewables even as state officials rewrite the rules governing Texas' prized competitive energy market to attract more thermal plants.

A deadly winter storm in February 2021 prompted regulatory and legislative efforts to shore up grid reliability, with top state officials eyeing gas-fired power plants as a solution. But the investment appetite for clean energy installations has far outpaced that for fossil fuel plants on the grid operated by the Electric Reliability Council of Texas Inc. Armed with lucrative federal tax credits, developers plan to energize up to 9.7 GW of new solar, 4.5 GW of wind and 4.1 GW of battery storage capacity in 2023, according to S&P Global Market Intelligence data.

Overall, the data show that 19.5 GW is scheduled to come online 2023, including 1.1 GW of gas-fired resources. And there are no plans to build more coal or nuclear power plants, though Vistra Corp., owner of the two-unit Comanche Peak nuclear plant in Somervell County, Texas, southwest of Fort Worth, in October 2022 applied for a license renewal, which would let the 2,400-MW plant operate an additional 20 years.

If all planned projects are completed in 2023, ERCOT's installed generating capacity will increase 15% year-over-year to 153.9 GW, according to the data. The only noted retirement is about 200 MW of wind capacity.

With Texas' diverse economy luring more residents and businesses to the state, ERCOT is projecting summer peak demand for energy will grow 1.2% annually until 2032. ERCOT should have enough installed capacity to meet that swelling demand as energy additions are forecast to increase by 1.9% annually. ERCOT said in its spring 2023 seasonal assessment, released in March, that it will have 99,773 MW available to meet a peak demand in May of 69,921 MW, providing an operating reserve margin of nearly 30%.

But officials are more concerned about the grid's resource mix, particularly as the state's coal fleet ages.

The largest coal-fired workhorses are nearly half a century old. In its spring assessment, ERCOT noted that a 610-MW unit at the four-unit W.A. Parish 5-8 coal plant — which began producing power in 1977 — near Houston remains out of service for the season. Plant owner NRG Energy Inc. has not publicly floated any plans to retire it, even as losses stack up. Executives said during a fourth-quarter 2022 earnings call in February that an extended outage during a December 2022 winter storm accounted for $220 million of lost margin for the quarter. Parish unit 8 has been out of operation since a May 2022 fire. NRG President, CEO & Director Mauricio Gutierrez said during a May 4 earnings call that the unit "remains on track for return to service before the summer."

The North American Electric Reliability Corp. said in a December 2022 report on the bulk power system that while ERCOT's "projected reserve margin for 2024 is much higher than what was projected in [2020] the additional reserves are from solar, which does not provide significant winter reliability value."

"The continuing penetration of solar in the [ERCOT] area is increasing the risk of tight operating reserves during hours other than the daily peak load hour," the NERC report said. "The issue is most acute for the summer season when solar generation ramps down during the early evening hours while load is still relatively high."

Steve Piper, director of energy research for S&P Global Commodity Insights, said he agrees with state officials' concerns "that maybe they're not doing enough to incentivize conventional generation."

"There's only so much renewables you can add before more and more renewables don't really improve the reliability of the system," Piper said. "We believe that the economics for conventional fossil [fuels] are probably a little bit better in the areas where they're needed."

In January, the Public Utility Commission of Texas passed a performance credit mechanism under which power providers such as electric cooperatives, retailers and cities would pay for credits sold by generators that commit to supplying power in high-demand conditions.

But it is up to state lawmakers to approve or change the credit plan. While Gov. Greg Abbott (R) supports the performance credit, Sen. Charles Schwertner (R) — the author of 2021 legislation that called on the PUCT to create reliability incentives — in a January letter to commissioners blasted the proposal as an "unnecessarily complex, capacity-style design that puts the competitive market at risk without guaranteeing the delivery of new dispatchable generation."

But some have said the same of Schwertner's major energy bills, which would subsidize the construction of 10 GW of natural gas resources and force renewable energy generation to pay for a new ancillary services product that would incentive dispatchable generation.

The legislative session adjourns May 29.

Reliability investments

Mike Alvarado, CEO of independent power producer WattBridge Energy LLC, told lawmakers that the bills under consideration could make the Houston-based company rethink building more natural gas peaker plants in ERCOT, according to the Houston Chronicle.

As of February, the Houston developer had 2,400 MW of capacity operating or under construction in ERCOT. Another 1,600 MW is in advanced development.

WattBridge's 363-MW Brotman Power Station, located in the greater Houston area, is the largest of the six gas plants set for commissioning in ERCOT in 2023.

The Lower Colorado River Authority in January announced a partnership with Wärtsilä Oyj Abp to build a 190-MW gas peaker plant, set for commissioning in 2025.

Risto Paldanius, vice president of Americas for Wärtsilä, said in an interview that gas-fired resources will remain on the grid for decades until there is enough excess renewable energy to produce green hydrogen. The gas plant, scheduled for completion in 2025, will have capabilities to run a hydrogen blend, Paldanius said.

The market for quick-starting natural gas plants is only going to bloom in Texas, he said.

"Renewables go up at the same time the old fossil generation is not flexible enough — it's too polluting," Paldanius said. "And that's where a lot of our customers start to look at the balancing type of power plants. I have to say, the market is moving toward us."

But Wärtsilä is not just betting on gas. It provided technology for two utility-scale energy storage systems in South Texas, completed in March. The 200-MW Madero Grid Battery Storage Project and the Ignacio Grid Battery Storage Project are the first utility-scale battery facilities to use the new federal 30% investment tax credit for stand-alone storage. Eolian LP, a portfolio company of Global Infrastructure Management Participation LLC, owns the facilities.

In total, 38 energy storage projects are expected to join ERCOT's grid in 2023, according to the Market Intelligence data. Rodeo Ranch Energy Storage LLC has the largest of the storage projects scheduled for completion in 2023, the 307.5-MW Rodeo Ranch Battery Storage in Southwest Texas.

Most of the co-located storage is paired with solar. But, in a potential preview of the storage landscape in Texas, the nation's top state for wind energy, NextEra Energy Inc. subsidiary NextEra Energy Resources LLC has proposed to build the 120-MW Inertia Wind Battery Storage next to its planned 301.3-MW Inertia Wind Project.

If battery storage costs come down a bit and long-term batteries make it to market, "maybe we're just exclusively building storage for reliability and it could work out well," Piper said. "But until we see that happen, I think our outlook is actually conventional gas generation, building peakers ... looks like a more economic option a couple years down the road."

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