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Merry Christmas, Texas Power! Love, Texas Power

Surprises are nice but, sometimes the best Christmas gifts are the ones you give yourself.

The Electric Reliability Council of Texas recently released its usual year-end projections of the state’s power market. The outlook has shifted dramatically since May (which is when ERCOT releases its first take every year) in one crucial respect: reserve margins.

TEXAS POWER MARKET’S PROJECTED SPARE CAPACITY VS. PEAK DEMAND9.3% This is the level of spare capacity versus expected peak demand, and Texas’ rule of thumb is that you want a buffer of 13.75 percent of that demand. Back in May, ERCOT projected a buffer of 18.9 percent next summer. That’s been slashed by more than half to just 9.3 percent.


Estimates of Texas’ spare generating capacity have been slashed since May, taking them well below the 13.75 percent level usually viewed as adequate

Greg Gordon, an analyst with Evercore ISI, has helpfully compiled data showing how these outlooks have moved over the years. To simplify things, the chart below shows just five years of projected reserve margins for each of the December reports going back to 2013 (I’ve also thrown in this year’s May report for comparison):

Summer Is Coming

After years of expanding spare generating capacity, Texas suddenly faces the prospect of a tight power market next summer

This isn’t because power demand is expected to surge; ERCOT has slightly raised its projected growth rate across the next decade, but the forecast for peak demand in summer 2018 has actually been cut by half a percent.

Instead, years of falling wholesale power prices due to all that excess capacity did their job and pushed power producers to shut down plants. A net 2.5 gigawatts of expected summer capacity has been taken out since ERCOT’s last report in May. The biggest contribution to that came from Vistra Energy Corp., which is closing 4.3 gigawatts of coal-fired plants (the net number is lower because that measures both additions to capacity from elsewhere and factors in capacity utilization of different plants).

Read full article at Bloomberg