ERCOT POWER PRICES SEEN HAMPERING GAS-FIRED PROJECT DEVELOPMENT: SOURCES
Developers continue to prepare to build natural gas-fired capacity in the Electric Reliability Council of Texas footprint, but low prices and the prospect of the construction of more tax-subsidized, low-cost renewable capacity has some wondering how many new gas-fired units will actually be financed and come online over the next few years.
“Market prices just don’t support financing for new [generation] assets today,” Jeff Schroeter, managing director at Dallas-based developer/consultant Genova Power Advisors, said Wednesday. “And now that the [federal production tax credit] for wind has been extended, more wind farms are likely to be built, resulting in continued suppression” of market prices.
Texas wind farms often offer nighttime wind power into the ERCOT market at negative prices, Schroeter said, helping to hold down the market price and reduce the capacity factor of existing gas units — and the expected capacity factor of prospective gas units. That too is hurting the prospects for financing new gas units.
On Wednesday, ERCOT North Hub on-peak power fell $1 to around $19/MWh for Thursday delivery on IntercontinentalExchange. ERCOT North Hub February on-peak was flat at $23/MWh on ICE at around 2:30 pm EST.
Schroeter said that while ERCOT’s latest Capacity, Demand and Reserve report, issued on December 1, suggests the reserve margin in the region will remain relatively high through the rest of this decade, many of the gas-fired projects the CDR suggests will be completed in the 2018-20 period may not advance to financing and construction as quickly as their developers had once hoped.
That could result in a considerably lower reserve margin, and greater potential for volatile market prices during a very hot summer, he said.
CDR SEES HIGH RESERVE MARGIN
In the CDR, ERCOT said that — based upon the gas-fired, wind and other projects that have secured interconnection agreements and made other steps toward construction –it expects the summertime reserve margin in the region to be 16.5% this year, 20.7% in 2017, 25.7% in 2018, 22.9% in 2019 and 21.8% in 2020. ERCOT seeks to maintain a summertime reserve margin of at least 13.75%.
Warren Lasher, ERCOT’s director of system planning, said Wednesday the CDR’s reserve margin for 2016 and beyond “is not so much an expectation as it is an accounting of [proposed] resources that have met certain criteria” such as having interconnection agreements and air permits in hand.
Lasher acknowledged that some of the gas-fired projects that were included in the CDR may not be financed and built as quickly as their developers have expected, and that the reserve margin for future summers could be lower than the CDR suggests.