In the media

Texas grid’s reserve margins to surge through 2027, but forwards show upside risk

By Mark Watson

S&P Global

04 May 2023

Dr. Juan Giraldo, energy and utilities expert at PA Consulting, is quoted in S&P Global’s Megawatt Daily discussing summer wholesale power pricing in the Texas ERCOT market and ERCOT’s latest biennial Capacity, Demand and Reserves report.

The planning reserve margin is the percentage by which expected resources are expected to exceed forecast peakload in a base case scenario.

ERCOT’s latest biennial Capacity, Demand and Reserves report, released May 3, shows base scenario reserve margins for summer rising from summer 2023’s 23.2% to 33.9% in 2024 and 44.2% in 2025. Margins would slowly fall thereafter but remain above 37% through 2033. The reserve margins shown in the report can be compared with those in ERCOT’s December report, rising to 44.3% in 2025 from 22.2% from 2024 before falling gradually to 36.3% by 2032.

In the past, reserve margins usually had an inverse relationship with on-peak pricing, with lower reserve margins corresponding with higher power prices and vice versa. However, that relationship has generally not prevailed since 2020.

As of May 4, the yearly strip for ERCOT North Hub on-peak prices rise from 2023’s average around $41/MWh to about $48.25/MWh in 2024 and hover in excess of $50/MWh in 2025 through 2026 before falling back to about $48.30/MWh in 2027.

Juan said natural gas price weakness in 2023 would normally result in lower prices, but added, “scarcity pricing during the summer months has always been a big unknown, as it is largely dependent on weather and how wind performs during high load days.”

He said: “A new dynamic impacting ERCOT’s price formation has been the increasing solar penetration … and it’s interaction with wind output. In ERCOT wind and solar output are generally complementary with increasing wind output in the evening that compensates for decreasing solar output. However, days with low wind output can create large ramp needs as solar comes off the system, causing large price spikes in the early evening hours. … These events could challenge reliability and lead to very high pricing hours.”

The PUC has delayed action on the PCM until the Texas Legislature, currently in its regular session that happens once every two years, has had its say, and alternatives have been proposed, including the idea of funding 10 GW of new gas-fired generation to be held in reserve for emergencies.

Juan said the latest CDR and SARA provide no new information for legislative discussion, nor do they change “the overarching issues that have driven power sector legislation now pending in the state capitol.”

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