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ERCOT expects sufficient resources to meet long-term demand growth

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ERCOT expects sufficient resources to meet long-term demand growth

Even as an improved economic outlook drives demand forecasts higher, the Electric Reliability Council of Texas Inc. expects to have enough generating capacity to reliably serve demand through most of the next 10 years.

"Based on the information we have today and current planning criteria, we continue to see sufficient planning reserve margins through most of the 10-year planning horizon," ERCOT Senior Director of System Planning Warren Lasher said.

According to ERCOT's latest "Capacity, Demand and Reserves report" released Dec. 15, planning reserve margins range from 16.9% to 20.2% over the next five summers against a target reserve margin of 13.75%.

The most recent load forecast sees summer peak loads averaging 2,000 MW higher during the next five years, primarily due to a "more robust employment outlook for central Texas," according to the report. The latest projections reduce the long-term planning reserve margin outlook from the one issued in May.

During a Dec. 15 call with the media, ERCOT manager of load forecasting and analysis Calvin Opheim acknowledged the role Texas' oil and gas industry plays in driving load growth in the state, but cited economic diversification and employment growth in places like Austin and San Antonio as the main drivers of the revised economic outlook.

"While generation resource development in the next several years is expected to keep up with this growing demand, we could also see a number of existing resources retire," Lasher said.

According to the report, ERCOT can expect 82,246 MW of capacity by the summer of 2017, and expected capacity additions will bring the system's total to 88,456 MW by 2021.

The outlook is inclusive of all capacity that has notified ERCOT of plans to deactivate, as well as planned resources that have secured interconnection agreements and any necessary air permits and water use contracts.

Power plant developers usually do not secure interconnection agreements of more than three to five years of when they plan to begin operating.

The report comes on the heels of a hot summer, during which low natural gas prices and high renewable output squeezed the market's fossil fuel generators in spite of record demand.

Based on planned additions and retirements from 2017 through 2021, ERCOT expects installed renewable capacity growth to outpace that of thermal generation capacity, with thermal capacity growing 3,657 MW, or 5.2%, on a net basis, while that of renewable capacity grows by 9,749 MW, or 46%. But market uncertainty poses a risk to that outlook.

Analysts say renewable capacity growth clouds future generator earnings, while others say low power and natural gas prices will drive coal-fired generators to hemorrhage cash as the capacity mix shifts toward renewable generation. Looking back on 2015 market results, ERCOT's market monitor said wholesale power prices were too low to support new power projects and that market results put existing coal-fired and nuclear generation in economic peril.

The report did not factor in the request by the city of Lubbock to join ERCOT in 2019, given that the matter is still pending before the Public Utility Commission of Texas. According to SNL data, the municipal utility had 88,766 residential electric customers, 14,247 commercial customers and seven industrial customers in 2015. It owns 224 MW of currently operating natural gas-fired capacity.

SNL Energy is an offering of S&P Global Market Intelligence.