Wind capacity growth clouds ERCOT market outlook
With wind turbines accounting for an increasing share of the capacity mix in Texas’ wholesale power market, the certainty around market outcomes is diminishing.
“The [Electric Reliability Council of Texas Inc.] market is now more dependent on random weather than ever,” ICF analysts wrote in an upcoming report. “While it was always the case with ERCOT’s real-time scarcity construct that hot weather was crucial to drive a high real-time peak demand and potential scarcity pricing, ERCOT now has more wind capacity than any other U.S. grid.”
ERCOT’s installed wind capacity stood at 16.6 GW as of August, and will expand to 28.2 GW by the end of 2019, according to a Sept. 1 ERCOT generator interconnection status report.
“It is now the case that variability in wind [generation] is greater than the variability in load,” the report said. “Over the past 10 years, the second-worst outcome for demand was an under-forecast of peak by about 1.7 GW. However, the chance of wind output being 1.7 GW below planning levels is at least 16% during August [3 p.m. to 6 p.m. hours]. Therefore, wind is now the greater unpredictable variable factor … Further, the combination of low wind and high load can mean a combined difference of [negative 4,000 MW to 6,000 MW].”
The variability of wind generation and demand is important because ERCOT’s prices are determined in part by the level of excess generating capacity available in real time. As operating reserves diminish, prices, governed by ERCOT’s operating reserve demand curve, climb toward the market’s $9,000/MWh cap. Due to the ORDC’s shape, the difference between 2,000 MW and 3,000 MW of operating reserves reflects an $8,000/MWh difference in price.
On Aug. 8 and Aug. 10, more than 5 GW of wind generation was available to help carry record demand. On Aug. 11, more than 4 GW was available. But with the available wind generation, record demand failed to send prices spiking.
During July and August hours when the market is most likely to hit the day’s peak demand, more than 5 GW of wind generation was contributing power to ERCOTs grid nearly half of the time. The prior year, more than 5 GW of wind generation was available during roughly a fifth of these intervals.
“With such ever-increasing dependence on highly variable random factors (not even to mention the upcoming wild card that is solar), ERCOT continues to look less and less like a predictable market for capacity and increasingly like a market open to surprise outcomes,” the report said. “Low gas prices, which have compressed the otherwise more stable energy margins for baseload units, means that the entire fleet of dispatchable generators is now dependent on the rolls and turns of hourly scarcity in order to break even.”
Market participants expect the highest prices in ERCOT during August, when the region’s heat drives demand for electricity toward its annual peak and spare capacity is expected to be most scarce.
But historical prices bear little resemblance to the shape of the forward curve. Since they surged to $210.92/MWh in August 2011, the market’s average monthly on-peak prices have been above $50/MWh during four months, none of which is August: September 2013, January 2014, February 2014 and March 2014. Even so, August forward on-peak power prices remain at levels they have not reached in five years.
Looking back on the summer’s weather, ERCOT senior meteorologist Chris Coleman said the first half of July was windier than normal compared to previous summers, as two areas of high pressure parked on either side of Texas — one over the southwestern U.S. and the other over the southeastern U.S. — channeled wind over the Lone Star state.
