Monday, February 18, 2019

ERCOT: Tight Summer Margins No Cause for Alarm

By Tom Kleckner

ERCOT said Thursday it expects the recent retirement of coal-fired and aging units to result in tight operating reserves this summer — an unnerving proposition for some observers when the ISO is also projecting record-breaking peaks during the summer heat.

According to ERCOT’s preliminary seasonal assessment of resource adequacy (SARA) for the summer (June-September), the grid operator expects a total resource capacity of 77.7 GW. That doesn’t leave much wiggle room when the report also forecasts a summer peak load of almost 73 GW, which would break the 2016 record of 71.1 GW.

“The name of the game is performance,” ERCOT Manager of Resource Adequacy Pete Warnken said during a media call, repeating a message CEO Bill Magness delivered to the ISO’s Board of Directors last week. “We need to make sure all our resources are available and that we have situational awareness. If everyone is diligent about doing their job, we should be fine.”

ERCOT ORDC operating reserves

ERCOT operators monitor the Texas grid. | © RTO Insider

Warnken highlighted ERCOT’s operating reserve demand curve (ORDC), a real-time price adder that reflects the value of available reserves, as one of several pricing mechanisms available for use this summer. He said the ISO will be “centrally testing” the ORDC for the first time this summer.

Dan Woodfin, ERCOT’s senior director of system operations, joined with Warnken in explaining to anxious Texas media how emergency response and other ancillary services, demand response, the 1.2 GW of emergency capacity available over five DC ties, and the availability of generators that can switch between neighboring grids will help prevent rolling blackouts in a worst-case scenario.

“We certainly have the tools and processes in place,” said Warnken, who also dismissed the likelihood of blackouts.

“In general, the whole market is set up in such a way that it encourages all generators to be online and resources to be available,” Woodfin said. “During these tight conditions, when prices are higher, there are lots of economic incentives to reduce demand or produce power.”

ERCOT said in its SARA announcement that the wholesale market provides “strong financial incentives” for generators to be available when demand rises and for retail electric providers to prepare for price fluctuations. It also raised the possibility of voluntary load reductions and injections of energy into the market by industrial facilities during peak demand.

In a somewhat unusual move, the Public Utility Commission of Texas, which oversees ERCOT, issued a statement following the SARA release, saying it continues to “closely monitor” this summer’s supply and demand forecasts. It noted generation owners’ decisions to retire large coal-fired power plants have “significantly reduced the excess supply of electricity” ERCOT has “enjoyed over the past five years.”

“It is important to note that the ERCOT market is designed with a number of mechanisms and tools to incentivize increases in supply or temporary reductions in demand to maintain the reliability of the system,” PUC spokesman Mike Hoke said, referring to the many different tools at the ISO’s disposal.

ERCOT attributed the tightening operating reserves to increased load from the state’s strong economy and the recent retirements. In a statement, Magness noted a series of monthly, winter and all-time peak demand records during recent years “as Texas’ economy continues to grow at record pace.”

“We expect high demand will continue this summer,” he said.

The ISO’s year-end Capacity, Demand and Reserves (CDR) report projected a 9.3% planning reserve margin for 2018, half of what it was in May and 4 percentage points below a 13.75% target ERCOT established for itself in 2010, following the wave of plant retirements last year. (See ERCOT: Tightening Reserve Margins no Cause for Concern.)

ERCOT said 3,800 MW in new generation resources began operating in 2017 and more than 14,000 MW of resources are planned to be in service by 2020.

The ISO also released its final assessment for the spring season (March-May), adjusting its spring peak forecast to 59.5 GW. It said it has sufficient generation on hand to meet demand.