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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--It's expected to be another tight summer for electricity in Texas, with energy emergencies a distinct possibility, but the Electric Reliability Council of Texas (ERCOT) (Austin, Texas) believes it has adequate generating resources to meet this summer's peak electric load. In its preliminary Seasonal Assessment of Resource Adequacy (SARA), released March 5, the grid operator said this summer's electricity demand is expected to peak at 76,696 megawatts (MW), while generating resources are predicted to be 82,417 MW. The reserve margin, about 7%, is about half of what the industry prefers.
ERCOT is the independent system operator that manages the flow of electric power to more than 26 million Texas customers, representing about 90% of the state's electric load. ERCOT's assessment included four scenarios, and all four indicated energy emergencies could be called this summer. In three of the four scenarios, an outright shortfall of electric generation was possible, depending on weather, generator outages and low wind power generation. Energy emergencies allow ERCOT to call on resources, including paying customers to not use electricity, that it would not normally be able to access.
A tight electricity market could also push up wholesale electricity prices, which should bring some generators back into the market.
The agency said, "As in 2019, the need to declare an energy emergency will depend on a combination of factors, including demand, wind output and the number of generators on outage on any given day. ERCOT and its market participants are taking steps to ensure system reliability can be maintained during tight conditions."
A statement from the agency said that about 513 MW of new generating capacity has come online since December 2019, expanding the state's electric resource portfolio. Roughly 80% of those new resources--425 MW to be exact--are renewable, which means they are less dispatchable than coal, gas or nuclear power plants.
"ERCOT has added new electric supply resources, and strong economic growth continues to push up demand," ERCOT President and Chief Executive Officer Bill Magness said in releasing the study. "We expect grid operations to be very similar to last summer."
Last summer, ERCOT set a new record for peak electricity demand, 74,820 MW, and it called two electricity emergencies. Electricity prices rose last summer during the emergencies. This year's predicted summer peak demand, 76,696 MW, is about 1,876 MW higher than last year's peak.
If the agency's projection comes true, this will be the third consecutive summer where there was a "tight" balance between electric supply and demand. Texas operates its own electric grid, with relatively little import capability from surrounding markets. A prolonged period of strong economic growth has pushed up electricity demand in recent years. Strong growth in one sector, Oil & Gas Production, including liquefied natural gas (LNG) export terminals, has contributed to the increase.
But the retirement of coal-fired generation, plus delays in completing other generation and transmission projects, has worked to narrow ERCOT's reserve margin. For more on this, see May 21, 2019 article - Energy Traders Worried About Mismatch Between New Wind Projects in Texas and Transmission Capacity; May 14, 2019, article - Texans May Experience Electric Emergencies This Summer and March 5, 2018, article - Texas Faces a 'Tight' Summer, as Electric Reserve Margins Shrink.
Representatives of NRG Energy Incorporated (NYSE:NRG) (Princeton, New Jersey), which operates in ERCOT, said the agency's power demand increased at a 2.4% compound annual growth rate (CAGR) from 2012 to 2019 and is forecast to grow at a 3.2% CAGR from 2020 to 2024, according to news reports of the company's earnings call.
ERCOT's recent and projected electricity demand growth rate is several times the industry average.
There appear to be two wildcards in looking at the ERCOT summer supply-demand projection: COVID-19 and the global oil price war.
ERCOT spokesperson Leslie Sopko told Industrial Info that it is too soon to say how the COVID-19 virus or the oil price war could affect summer power demand in the Lone Star State.
Parts of the state are under stay-at-home orders, but the state has not, as yet, enacted such an order. Roughly 20 states have adopted stay-at-home orders, where people are not allowed to go to their offices. As a result, many people are working from home. The loss of electricity sales to office buildings could be partly or wholly offset by increased power use by home-based workers.
Electricity demand from manufacturers and small businesses would decline if a stay-at-home order is issued by the Texas governor. However, the energy industry is considered an essential business, so its employees likely would be exempt from any stay-at-home order. But if COVID-19 sickens a significant number of oil industry workers, the industry's summertime demand for electricity could shrink.
The other uncertainty hanging over summer peak electric demand is the price war currently gripping the oil and gas industry. Reduced global demand triggered by COVID-19, coupled with a price war being waged by Saudi Arabia and Russia, have cut the price of West Texas Intermediate (WTI) crude oil by 50% during March. WTI recently bottomed at about $20 per barrel, and is currently selling for about $23 per barrel. At that price, many producers in Texas can't operate profitably. Any slowdown in oil and gas production could reduce electric demand.
ERCOT prepared its preliminary assessment based on normal summer peak weather conditions from 2004-2018. In a few weeks, the agency will release its final summer assessment, which will reflect Texas' expected summer weather conditions. Based on what it knows now, ERCOT said it anticipates there will be sufficient generation to meet summer system-wide demand under a range of extreme system conditions.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.
ERCOT is the independent system operator that manages the flow of electric power to more than 26 million Texas customers, representing about 90% of the state's electric load. ERCOT's assessment included four scenarios, and all four indicated energy emergencies could be called this summer. In three of the four scenarios, an outright shortfall of electric generation was possible, depending on weather, generator outages and low wind power generation. Energy emergencies allow ERCOT to call on resources, including paying customers to not use electricity, that it would not normally be able to access.
A tight electricity market could also push up wholesale electricity prices, which should bring some generators back into the market.
The agency said, "As in 2019, the need to declare an energy emergency will depend on a combination of factors, including demand, wind output and the number of generators on outage on any given day. ERCOT and its market participants are taking steps to ensure system reliability can be maintained during tight conditions."
A statement from the agency said that about 513 MW of new generating capacity has come online since December 2019, expanding the state's electric resource portfolio. Roughly 80% of those new resources--425 MW to be exact--are renewable, which means they are less dispatchable than coal, gas or nuclear power plants.
"ERCOT has added new electric supply resources, and strong economic growth continues to push up demand," ERCOT President and Chief Executive Officer Bill Magness said in releasing the study. "We expect grid operations to be very similar to last summer."
Last summer, ERCOT set a new record for peak electricity demand, 74,820 MW, and it called two electricity emergencies. Electricity prices rose last summer during the emergencies. This year's predicted summer peak demand, 76,696 MW, is about 1,876 MW higher than last year's peak.
If the agency's projection comes true, this will be the third consecutive summer where there was a "tight" balance between electric supply and demand. Texas operates its own electric grid, with relatively little import capability from surrounding markets. A prolonged period of strong economic growth has pushed up electricity demand in recent years. Strong growth in one sector, Oil & Gas Production, including liquefied natural gas (LNG) export terminals, has contributed to the increase.
But the retirement of coal-fired generation, plus delays in completing other generation and transmission projects, has worked to narrow ERCOT's reserve margin. For more on this, see May 21, 2019 article - Energy Traders Worried About Mismatch Between New Wind Projects in Texas and Transmission Capacity; May 14, 2019, article - Texans May Experience Electric Emergencies This Summer and March 5, 2018, article - Texas Faces a 'Tight' Summer, as Electric Reserve Margins Shrink.
Representatives of NRG Energy Incorporated (NYSE:NRG) (Princeton, New Jersey), which operates in ERCOT, said the agency's power demand increased at a 2.4% compound annual growth rate (CAGR) from 2012 to 2019 and is forecast to grow at a 3.2% CAGR from 2020 to 2024, according to news reports of the company's earnings call.
ERCOT's recent and projected electricity demand growth rate is several times the industry average.
There appear to be two wildcards in looking at the ERCOT summer supply-demand projection: COVID-19 and the global oil price war.
ERCOT spokesperson Leslie Sopko told Industrial Info that it is too soon to say how the COVID-19 virus or the oil price war could affect summer power demand in the Lone Star State.
Parts of the state are under stay-at-home orders, but the state has not, as yet, enacted such an order. Roughly 20 states have adopted stay-at-home orders, where people are not allowed to go to their offices. As a result, many people are working from home. The loss of electricity sales to office buildings could be partly or wholly offset by increased power use by home-based workers.
Electricity demand from manufacturers and small businesses would decline if a stay-at-home order is issued by the Texas governor. However, the energy industry is considered an essential business, so its employees likely would be exempt from any stay-at-home order. But if COVID-19 sickens a significant number of oil industry workers, the industry's summertime demand for electricity could shrink.
The other uncertainty hanging over summer peak electric demand is the price war currently gripping the oil and gas industry. Reduced global demand triggered by COVID-19, coupled with a price war being waged by Saudi Arabia and Russia, have cut the price of West Texas Intermediate (WTI) crude oil by 50% during March. WTI recently bottomed at about $20 per barrel, and is currently selling for about $23 per barrel. At that price, many producers in Texas can't operate profitably. Any slowdown in oil and gas production could reduce electric demand.
ERCOT prepared its preliminary assessment based on normal summer peak weather conditions from 2004-2018. In a few weeks, the agency will release its final summer assessment, which will reflect Texas' expected summer weather conditions. Based on what it knows now, ERCOT said it anticipates there will be sufficient generation to meet summer system-wide demand under a range of extreme system conditions.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.
