Capacity Crisis In Texas Electricity May Be Overblown

The debate about the possibility of a capacity market for electricity in Texas may have just changed.  An updated model for forecasting future electricity demand in the state has been put forth by ERCOT.  The new numbers substantially reduce the growth projections for electricity demand in Texas over the coming years.

In recent years there has been a great deal of hand wringing concerning the ability of the Texas electricity grid to keep up with future demand growth.  This has led to the “capacity market” proposal that would see an overhaul of the state’s deregulated electricity market.  It would lead to higher electricity rates and guaranteed capacity payments to producers of electricity in the state.

The impetus behind the proposed changes is the prediction that the state’s reserve margin for electricity would fall below acceptable limits.  The state targets a reserve margin of 13.75%; meaning that the state’s actual electricity capacity would exceed the expected peak demand by that amount. This is intended to insure against unexpected events that could lead to potential power outages such as unusual weather events or power plant failures.

The state’s most recent projection from May of last year showed the reserve margin falling below target by next year and continuing a downward trend to the single digits over the next few years.  When the new growth projections are plugged in to the May 2013 projection, a different story emerges.  The reserve margin sits at 16.69% in 2015, and grows to 17.88% in 2017 before trending lower again.

Year   Reserve Margin
2014      16.75%
2015      16.69%
2016      17.23%
2017      17.88%
2018      16.35%
2019      13.61%
2020      12.27%

Revised reserve margins based on new methodology.
Source: Energy Choice Matters

ERCOT’s new forecast methodology loosens the correlation between economic growth and increased electricity demand.  This is in response to the fact that recent projections have missed the mark by overestimating the amount of growth in electricity demand in relation to the economic growth the state has experienced.

According to ERCOT, “While peak demand growth has slowed to about 1 percent annually, the economic forecasts and non-farm employment statistics used in recent load forecasts have resulted in growth forecast estimates of 2 to 3 percent in the two- to three-year outlook.”

Although the old model projects a total demand growth of just over 8% in the next 3 years, the new method results in a demand growth projection of just over 4%.  This is a significant difference in a grid the size of the one in Texas.

The proposed new methodology is still subject to a final approval but it’s already been enough to shake up the debate on a capacity market in Texas.  As it stands, the state’s 3 member PUC committee seems to be leaning toward the adoption of a capacity market in some form while Commissioner Ken Anderson stands alone on the committee as a staunch critic of a capacity market.

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