As anticipated, summer heat waves in Texas drove high demand over the last three months, which, when combined with the retirement of over 3 GW of baseload capacity in January and February, resulted in increased scarcity pricing that pushed power prices upward. August scarcity pricing peaked at $1,416.74/MW, higher than the July peak of $799.66/MW, but overall, the scarcity pricing mechanism was triggered less often in August than in July. August average demand in the Electric Reliability Council of Texas was 52.7 GW, up about 8% year-over-year, while August peak demand in the region was 69.8 GW, up 3% compared to August 2017.
The average August around-the-clock settlement point price in ERCOT's North Zone was $35.08/MWh, above the year-ago average prices of $26.79/MWh but below the July average price of $42.22/MWh. The 15-minute price for the North Zone spiked to $2,085.38/MWh on Aug. 18.
Looking ahead, Power Forecast projections for ERCOT call for high prices in coming summers, as generation additions lag peak demand growth. The forecast for North Zone sees on-peak prices reaching $189.92/MWh in August 2019 and $197.92/MWh in August 2020. To see ERCOT projections extending out 20 years, see the Market Intelligence Power Forecast.
The August around-the-clock average price of $35.08/MWh was lower than the most recent S&P Global Market Intelligence Power Forecast projection for the month, $143.36/MWh. Scarcity pricing deployment, while meaningful, has not been as robust as anticipated, and generators may not be receiving their full return as a result. Around-the-clock prices will need to reach higher levels in order to encourage more capacity to join the ERCOT market.
August's settled prices should nevertheless provide a significant boost to merchant plant earnings in ERCOT. As an indicative example, S&P Global Market Intelligence estimated earnings for Bosque Energy Center over the last two years using a recent template. Owned by Calpine Corp., the 818-MW plant brought in roughly $7.5 million in earnings in August 2018, over half of full-year 2017 estimated earnings of $12.1 million, with the assumption of no hedges in place. The August estimate follows on the Market Intelligence estimate that scarcity events in July drove earnings to $31.5 million, an amount greater than estimated earnings for all of 2016-2017.
August saw significantly higher scarcity pricing than in recent years, with the real-time online reserve price adder maintaining a rate above $100/MW for nearly three hours on August 18 and reaching a peak of $1,416.74/MW during that period. For comparison, the real-time on-line reserve price adder reached a maximum of $296.86/MW in August 2017 and a maximum of $76.41/MW in August 2016. The operating reserve demand curve, which values diminishing reserve capacity in real time, was implemented after generation shortages caused high prices in 2011.
For the full range of projections, see the Power Forecast.