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Heat wave combines with low wind output to send ERCOT prices soaring

Highlights

Capacity shortage notice issued

Peaker net margin approaches $117,000

Houston — As a heat wave continued to plague the Electric Reliability Council of Texas with triple-digit high temperatures Friday afternoon, output from ERCOT's 22-GW wind fleet plunged to less than 1.2 GW, resulting in real-time prices soaring into quadruple digits for almost two hours.

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As of about 4 pm CDT, temperatures were 101 degrees Fahrenheit in Austin and Dallas, 98 in San Antonio and 97 in Houston, and load had surged to 67,806 MW en route to its forecast peak of 68,911 MW.

Around that time, wind output was about 1,377 MW, but it had maintained hourly average output in a range of 1,185 MW to 1,191 MW between noon and 3 pm.

Early on Friday, ERCOT issued an Operations Control Notice for a projected reserve capacity shortage for the period from 1 pm to 6 pm Friday, and it issued an appeal around 10:30 am CDT for consumers to reduce power demand between 2 pm and 7 pm.

Real-time power prices started exceeding $100/MWh in the 15-minute interval that ended at 1:45 pm CDT, when it averaged $130.94/MWh systemwide. Real-time prices topped $1,000/MWh during the 15-minute interval that ended at 2:30 pm CDT, when it averaged $1,371.03/MWh systemwide.

For the 15 minutes ending at 4 pm CDT, the systemwide average prices was $1,732.72/MWh.

On Monday, ERCOT systemwide peakload is forecast at 67,990 MW, and high temperatures across the ERCOT footprint are forecast in the low to mid-90s, according to CustomWeather data.

ERCOT wind generation is forecast to jump Monday to an average of 12,325 MW, up from Friday's average wind generation of 4,030 MW, according to ERCOT data.

PEAKER NET MARGIN

Day-ahead on-peak prices trended downward, but on Friday morning, balance-of-day on-peak power was trading in the mid-$510s/MWh on the Intercontinental Exchange.

Throughout the past few weeks of extreme prices, ERCOT's "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, has grown substantially - reaching $116,747.90 as of Friday morning.

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. When PNM reaches tree times PNM, the systemwide offer cap - currently $9,000/MWh - is lowered to $2,000/MWh.

ERCOT and the Public Utility Commission of Texas track the PNM as a way to determine whether more generation is likely to be developed in the state.

"If the market is working, in some years the PNM will be below average and in some years above," William Hogan, a Harvard University global energy policy professor, said in an email this week. "Different investors will have different views about future market conditions and related risks. But a year with relatively above average PNM should provide an incentive to move more quickly."

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

-- Kelli Ainsworth, kelli.ainsworth@spglobal.com

-- Edited by Rocco Canonica, newsdesk@spglobal.com