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Analyzing The ERCOT Reserve Margin Prediction

Earlier this year, the Electric Reliability Council of Texas (ERCOT) made an optimistic prediction that raised alarms for NRG’s CEO, Mauricio Gutierrez. According to Gutierrez, ERCOT’s prediction that the next five years are looking good for Texas electricity generation and reserves is not true.

Gutierrez has said that ERCOT used outdated information in their latest forecast. He goes on to say that for a multi-year forecast (2020-2024), it’s suspicious that ERCOT included 1.7 gigawatts of power capacity from generators that are non-functional for the next 5 years. This doesn’t include another 1.4 gigawatts from thermal generation plants that are to be retired.

According to the NRG CEO, the amount of phantom power that ERCOT included in the report, accounts for 4% of the reserve margin. Currently, the reserve margin is around 8.6%, so according to next year’s projection of 10.5%, renewable energy is going to account for an increase in energy reserves.

Renewable Energy’s Effect on Texas Reserve Margins

The reserve margin is defined by the U.S. Energy Information Administration as following:  “Reserve margin is (capacity minus demand)/demand, where ‘capacity’ is the expected maximum available supply and “demand” is expected peak demand.”

This means that if the Texas Grid has a reserve margin of 12%, then there is a 12% buffer between the forecasted peak demand (total electricity demand) and the amount of electricity stored in reserves.

But will renewable energy projects generate enough electricity to push the reserve margin in the range that ERCOT predicts?

Despite what Mauricio Gutierrez says though, Texas renewable energy is humming. Wind recently surpassed coal for energy production in Texas. In addition, wind energy is continuing to drive the price of power down overall. And according to this post from Texas Policy:  “July 2018, project installations have grown to nearly 23,000 MW in Texas alone, which is now 25% of the total installed in the U.S.”

So a lot of projects are always underway in Texas, meaning that the projections and optimistic increase in the reserve margin for the upcoming summers could be an accurate assumption.

Will ERCOT’s Prediction Hold up?

Back in December, ERCOT had already predicted a lower reserve margin because of “delays and cancellations of planned generation projects.” And we will see if the optimism for Texas electricity was accurate or a little “overstated”.

As the Houston Chronicle article states,  NRG attempted to adjust the ERCOT report, they found that to reach a reserve margin in the 10-12% range, “Texas would need to add more than 17 gigawatts of new renewable generation sources in the next three years.” That’s a big margin considering that Texas currently has close to 80 gigawatts of total capacity. But time will surely tell.

 

Update:

Wholesale Electricity Rates in Texas Soar in Summer of 2019

This summer has seen dramatic spikes in wholesale electricity rates in Texas.  ERCOT has called for emergency conservation of electricity as demand for energy has pushed the electricity grid to the brink of capacity.

 

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