Houston — The Electric Reliability Council of Texas on Tuesday announced a record-low forecast planning reserve margin of 8.1% for the summer of 2019, well below last summer's reserve margin of about 11% and the system's 13.75% target reserve margin.
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ERCOT coped with summer 2018's tight supply conditions by reducing generation and system outages, President and CEO Bill Magness said in a news release. "We anticipate the same type of focus on system performance as we head into another year with tight reserves," he said.
On Intercontinental Exchange, summer 2019 on-peak forwards rose $2 to about $142/MWh in morning trading and stayed in that vicinity most of the day.
ERCOT's target reserve margin, 13.75%, is designed to ensure that firm load shedding occurs no more than one day in 10 years.
The Public Utility Commission of Texas in 2016 ordered ERCOT to develop a new reserve margin standard based on the concept of an economically optimal reserve margin and a market equilibrium reserve margin. In October, ERCOT released a study showing ERCOT's EORM at 9% and MERM at 10.25%.
In a media call Tuesday, Pete Warnken, ERCOT resource adequacy manager, said the PUC has been mulling whether to use this study to set a new target reserve margin.
ERCOT has been issuing CDRs since 2000, Warnken said, and 8.1% is the lowest planning reserve margin for a prompt-year summer on record. ERCOT issues CDRs in May and December.
Market participants and observers expressed no surprise over Tuesday's news, but were divided over whether ERCOT could avoid firm load shedding.
During Tuesday's call, Dan Woodfin, ERCOT senior director of system operations, said, "we really can't speculate" about the possibility of rolling blackouts, which is "highly dependent on the weather."
However, Warnken acknowledged that "there's greater risk that this year we would enter into an energy emergency situation," which did not happen in summer 2018.
John Bonnin, vice president for energy supply and market operations at CPS Energy, the municipal electric utility for San Antonio, Texas, noted that "load continues to grow but no new resources are coming online."
In the latest Capacity, Demand and Reserves Report, ERCOT projected loads to peak at 74,853 MW in the summer of 2019, up from 74,202 MW in the CDR issued in May and last summer's actual record peakload of 73,473 MW.
Other factors in next summer's market tightness include projects being delayed and cancelled, ERCOT said, providing just 78,555 MW in capacity available in summer 2019, compared with the May CDR's projected total capacity of 79,587 MW next summer.
"Since the May 2018 CDR report, three planned gas-fired projects totaling 1,763 MW and five wind projects totaling 1,069 MW have been canceled," ERCOT said. "Another 2,485 MW of gas, wind and solar projects have been delayed."
However, more than 1.7 GW of generation has been approved for commercial operation since the May CDR, and almost 7.5 GW has become eligible for inclusion in the CDR over the next five years.
CPS Energy plans to retire its coal-fired J.T. Deely units 1 and 2, more than 800 MW of capacity, by the end of 2018, Bonnin noted in an email Tuesday, but he added that rolling blackouts are unlikely, as "high forward prices incent increasingly more demand-side programs to shave the peak."
"There will be calls for generators to increase spring maintenance to improve probability of summer availability," Bonnin said. "The PUCT has already begun to get the generators and pipeline companies together to ensure pipeline maintenance doesn't create shortages in generator availability."
Also, ERCOT's three major load centers - Austin-San Antonio, Dallas-Fort Worth and Houston - rarely have 100-degree temperatures simultaneously, Bonnin said.
Ryan Hardy, a PA Consulting energy markets expert, said the probability of rolling blackouts is "hard to pinpoint exactly, but it is more likely to happen than last summer" and "will depend heavily on three fundamental factors: hot weather, wind generation during peak periods and the ERCOT ISO's ability to deploy demand response during peak loads."
Terry Bartifay, president of Houston-based Veritas Retail Energy, said markets regularly express "some level of anxiety and mild panic when reserve margin forecasts change, tightening the margin for error."
"However, we saw this same panic and anxiety subside after initial reaction to Vistra's announcement of plant closures in late 2017," Bartifay said in an email Tuesday. "We'll see the same futures cycle we saw starting in late 2017 -- initial reaction/overreaction followed by correction -- as we approach summer 2019 period."
Adam Sinn, a Houston-based trader at Aspire Commodities, said the PUCT may change ERCOT's Operating Reserve Demand Curve so prices received by generators would be significantly higher over longer periods of time - estimated by Exelon as bringing in another $4 billion a year in ERCOT over the next four years.
Retail customers would be "better off in a regulated market where that money actually goes directly to a new-build power plant," Sinn said.
"At this point the PUCT needs to take its time and do a formal study that effectively incentivizes longer term reliability beyond 2019," Sinn said.
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