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As heat wave looms, ERCOT and Texas regulators emphasize grid readiness

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Platts Market Data – Natural Gas

As heat wave looms, ERCOT and Texas regulators emphasize grid readiness

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Triple-digit highs expected July 25-26

Increased reserve levels being maintained

'Crisis-based business model' upended: Lake

Texas regulators and the Electric Reliability Council of Texas sought on July 22 to reassure Texas power consumers that they are doing what is necessary to ensure the power system remains reliable for the rest of the summer, as August is typically the hottest period of the Texas summer.

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CustomWeather data shows that the population-weighted average high temperatures in ERCOT average 90.5 degrees F in August, compared with 88.1 degrees F for June and July. In the summer of 2020, the August average was 87.3, but that month featured some of the summer's highest real-time on-peak systemwide locational marginal prices – almost $219/MWh on Aug. 15.

And the National Weather Service forecasts a heat wave with triple-digit highs to hit Texas July 25-26.

Brad Jones, ERCOT's interim president and CEO, said ERCOT may set a record next week for power demand, topping the 74,820 MW set in August 2019, but added, "We expect to have a sufficient amount of generation to serve all Texans."

ERCOT for the first time conducted more than 30 site visits to ensure generators have implemented their weatherization plans, Jones said, including "all the units that had problems during the winter storm."

Peter Lake, Public Utility Commission of Texas chairman, said, "we do know heat is coming, but we are ready for it. Overall, we're in a good position."

The PUC directed ERCOT to operate the grid in a more conservative way to emphasize reliability and accountability over affordability, and ERCOT has responded by requiring that at least 6.5 GW of reserves are maintained during the peak hours, and even more during periods in which the forecast is particularly uncertain.

"We are operating the grid in a more reliable manner than we have ever done before," Jones said. "We are buying more ancillary services [reserves] than we have in the past. We are also releasing those ancillary services quicker to the market."

No 'crisis-based business model'

Lake noted that in the past, ERCOT had acquired ancillary services a year in advance.

"Now, ancillary services – the amount in reserves – are getting set not only on the basis of historic anticipated need, but also in consideration of real-time conditions," Lake said.

In the past, ERCOT operated with a "crisis-based business model," Lake said, in which generators were able to make more money only when reserves approached zero.

"We have completely turned that model on its head, deploying more reserves sooner, -- 180 degrees different from how we've done business before," Lake said.

Lake estimated that these changes are likely to increase costs to the average Texas consumer by about $2 a month, over the short term.

Over the longer term, Lake said the market design reforms the PUC pursues with stakeholders are intended to shift existing incentives to reward dispatchable resources that show up when needed, whether that means natural gas-fired generation with on-site storage or solar facilities with battery storage.

"We want to reallocate the economics as they exist now to generators that are more dispatchable," Lake said. "There's a variety of mechanisms we can use to incentivize reliability and accountability."

Lake said he hopes to have the market redesign structural plans in place by the end of 2022, with implementation likely lasting a some months or years thereafter.

'A major overhaul'

"The market needs and will receive a major overhaul," Lake said, but he added, "We don't want to raise costs, and we don't expect [reforms] will raise costs."

ERCOT issued a request for consumers to conserve electricity demand during a mid-June heat wave when about 12 GW of generation was on forced outage, more than half of it thermal, which was about double the amount expected to be offline at peak at the beginning of the summer.

ERCOT is trying to determine what exactly happened to those generators, but Jones said part of that outage total may be attributable to damage incurred during the mid-February winter freeze that did not become apparent until systems were stressed during the June heat wave.

With such a high amount of wind capacity in Texas – the most of any US state – more dispatchable generation must remain online during the spring and fall, which shortens the window for maintenance on thermal generation, Jones said.

ERCOT needs to maintain the "tool" of consumers conserving power demand, which was also used that same week from coast to coast, Jones said, but he added, "We believe next week looks good. Please, don't panic."