Is ERCOT overstating capacity?
NRG leader contends power grid will be much tighter than forecast
The CEO of NRG Energy said Wednesday that the state’s power grid manager is overstating the amount of generating capacity and electricity supplies will be much tighter in coming years than estimated.
The state’s grid manager, the Electric Reliability Council of Texas, is predicting healthier power reserves over the next five years as more solar and wind projects come online and relieve concerns Texas won’t have enough electricity to meet the state’s needs. But those predictions are too optimistic, said NRG CEO Mauricio Gutierrez, who leads Texas’ biggest seller of electricity.
Gutierrez told investors that ERCOT included out- of-date information in its May forecast by including 1.7 gigawatt capacity of three natural gas plants that have been delayed an average of five years with no signs of any of them moving forward. One gigawatt provides enough power for about 700,000 homes.
ERCOT included another 1.4 gigawatts of thermal generation which burn either coal or natural gas in its tally of available capacity even though the generation facilities have already been slated for retirement. Taken together, according to Gutierrez, the plants that are planned to close or likely never to be built account for 4 percent of the reserve margin, the spare power supply available to meet extreme power demand. The estimates are used by power companies to determine whether they should invest in new generation facilities and whether lenders will provide funding.
ERCOT would not comment. Wholesale power prices in Texas surged Monday afternoon when prices reached $300 per megawatt hour, reflecting hotter than usual temperatures and low wind generation, according to the research firm S&P Global Platts. The high prices, along with forecasts of even hotter weather nextweek likely to reach into the triple digits, are boosting prices for power contracts later this summer and beyond.
ERCOT estimated in May that Texas would have a reserve margin of 10.5 percent next year and 15.2 percent in 2021. The reserve margin is expected to be 13 percent in 2022, 10.3 percent in 2023 and 7.8 percent in 2024, according to ERCOT.
This summer, the reservemargin sits at 8.6 percent, just more
than half of ERCOT’s reserve margin goal of 13.75 percent. ERCOT issued warnings in the spring that it may have to call for power conservation, import power from other states or take other measures to keep the lights on and the air conditioners humming. ERCOT has already issued heatwarnings thisweek in Dallas and other parts of North and Central Texas that prevent utilities and retail electric providers from shutting off power for nonpayment of bills.
The report on capacity demand and reserves is closely watched by the power industry to determine whether Texas faces shortages that could drive up prices and spur new powerproducing investments. It’s historically been a poor indicator of what actually gets built, according to Gutierrez.
Less than 50 percent of the renewable power projects included in ERCOT’s reports have been
completed.
NRG tried to adjust the ERCOT data and estimated that to maintain a reserve margin of 10 to 12 percent, Texas would need to add more than 17 gigawatts of new renewable generation sources in the next three years. Currently, Texas has nearly 79 gigawatts of total generation capacity.
“Let me be clear,” said Gutierrez. “The ERCOT market needs a tremendous amount of investment to just simply maintain the low reserve margin it currently has.”