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Houston — As a heat wave grips the Electric Reliability Council of Texas with triple-digit temperatures, power traders appear to expect real-time prices to spike, as balance-of-week forwards ranged Tuesday between $710 and the mid-$770s/MWh.

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CustomWeather forecast highs to hit 100 degrees F in Dallas Thursday and Friday, and 99 degrees in San Antonio, Texas, but The Weather Channel has forecast 100s for Austin, Dallas, Houston and San Antonio Thursday through Saturday, and also for Wednesday at Austin and San Antonio.

These highs are expected to drive peakloads higher each day through Friday, from 71 GW Wednesday to 72.7 GW Thursday and 73.3 GW Friday, but wind output is forecast to crater during these peak periods, finally hitting a low of about 960 MW at 1 pm Friday.

The grid operator around 9 am CDT Tuesday issued an extreme hot weather operations control notice for Friday through Saturday.

OFFER CAP LIKELY TO BE HIT

"Based on what I'm seeing from the current ERCOT forecasts, there's essentially no chance we wouldn't hit price caps if forecasts hold," said Travis Whalen, a power market analyst at S&P Global Platts Analytics.

ERCOT North Hub day-ahead on-peak power prices on the Intercontinental Exchange were in the mid $130s/MWh for delivery Wednesday, and the ERCOT North Hub balance-of-week on-peak package was bid in the upper $710s/MWh and offered in the mid-$770s/MWh.

Whalen considers a key factor in ERCOT's likely price spike to be ERCOT's net load at peak - total power demand minus wind output - which is likely to exceed the 68.8 GW peak that hit at 4 pm on August 13, when real-time prices hovered around $9,000/MWh. Whalen calculates the net load to hit 69.9 GW for the hour ending at 5 pm on Thursday and top out at 71.2 GW at the same hour on Friday.

"That difference is larger than the change in forced outages that resulted in sustained price spikes on [August 15]," Whalen said in an email Tuesday.

ERCOT on Tuesday forecast generation outages between 4.8 GW and 4.9 GW Thursday and Friday. During the peak period of August 15, generation outages topped 6 GW.

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"While we may not see the same scale of forced outages, it would certainly be a surprise not to hit the $9000 price cap if the current forecasts for temperatures and load and wind hold," Whalen said.

Manan Ahuja, Platts Analytics senior director of North American power, noted that with even lower net loads on August 13 and 15, prices repeatedly hit the systemwide offer cap of $9,000/MWh.

"Moreover, the planned supply outages are also typically higher in September than in August, which could add to the supply-and-demand situation in the balance of the week," Ahuja said in an email Tuesday.

Rob Whaley, a principal analyst for North American power and renewables at the Wood Mackenzie consultancy, said, "Demand response seems to have performed well during the August price spikes, keeping the market balanced under duress."

"I would expect the same this time around," Whaley said in an email Tuesday.

However, Randy Jones, principal at Mountaineer Market Advisors, a Texas energy market consultancy, said: "If the high temps and demands materialize this week, it may possibly test the level of prolonged system stress where demand response fatigue begins to show up."

Regarding retail electricity providers' prospects, Wood MacKenzie's Whaley noted that most recent tight supply conditions have been confined to the months of July and August.

"Therefore, I would not be surprised if some providers with short-sighted risk profiles may get caught off guard this time around," Whaley said.

PEAKER NET MARGIN

One key ERCOT resource adequacy statistic is the "peaker net margin," a measure of how much net revenue a hypothetical natural gas generator might have earned in a year, given real-time power prices and spot natural gas prices. ERCOT has estimated that when PNM reaches about $88,500, it has reached the equivalent of the net cost of new entry for such a natural gas turbine generator. As of Monday afternoon, the PNM had reached $113,186 for 2019, compared with less than $65,000 for all 2018.

Asked whether this week's pricing might cause result in final investment decisions increasing dispatchable power supply, neither Jones nor Whaley expressed optimism.

"That's possible for some wind and solar developers but even if some new intermediate and peaking projects reach FID soon, you're looking at summer after next for the earliest easing they can offer during peak season," Jones said in an email Tuesday.

Whaley said he thinks developers need to see high prices "more consistently before committing to a project."

"It's a big gamble to take, when a few years in a row where weather is weaker than normal and/or wind availability is higher than normal can leave an investment stranded," Whaley said.

-- Mark Watson, markham.watson@spglobal.com

-- Edited by Richard Rubin, newsdesk@spglobal.com