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ERCOT projects tight summer market conditions through 2022

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ERCOT projects tight summer market conditions through 2022

Following significant power plant retirement announcements this fall, the Electric Reliability Council of Texas now expects tighter power market conditions through 2022.

The latest capacity, demand and reserves, or CDR, report, released Dec. 18, is a reversal of the prior outlook released in May in which the grid operator projected it would have summer capacity well in excess of its 13.75% planning reserve margin target and is below analyst expectations of summer reserve margins remaining in excess of 11% through 2021.

Despite a reduced load forecast from the prior CDR, ERCOT projects a 9.3% reserve margin in 2018 that rises to remain above 11% through 2021 before falling back to 9% in 2022.

A Dec. 6 Macquarie report said projected reserve margins of above 10% could be bearish for ERCOT forward power prices.

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"[The amount of capacity in excess of forecast peak demand] fluctuates over time," ERCOT CEO Bill Magness said. "We see these types of shifts as the ERCOT market experiences cycles of new investments, retirement of aging resources, and growing demand for power."

Despite the approval of 3,779 MW for commercial operation since the May CDR, the grid operator revised its summer 2018 outlook for generating capacity lower by 7,200 MW, blaming retirements announced by Vistra Energy Corp. subsidiary Luminant Generation Co. LLC totalling 4,200 MW. Analysts have said that the coal plant retirements could send power prices higher and "be worth billions to the market in 2018."

In the report, ERCOT also cited delays in projects that had been projected to come online prior to the 2018 peak summer cooling season, including three planned gas-fired resources totaling 1,193 MW and several planned renewable projects with an average capacity contribution of 881 MW.

The grid operator anticipates it will have sufficient generation capacity for the upcoming winter and spring despite the retirements, and will release another assessment of resource adequacy prior to the summer operating season.

The Public Utility Commission of Texas has directed ERCOT to study the appropriate level of reserves needed to maintain reliability while minimizing costs in its energy-only market. The grid operator will provide the results of that study by late 2018.