Dive Brief:
- NRG Energy says that while plant cancellations and project delays threaten to push the grid's reserve margin lower, the fundamentals for generators in Texas power markets look strong.
- Earlier this year, the Electric Reliability Council of Texas indicated summer reserve margins are expected to fall from 18.9% in 2018 to 9.6% in 2027, in part due to load growth as the state's economy continues to expand.
- But speaking with analysts and journalists last week, Platts reports that NRG Energy CEO Mauricio Gutierrez said the 2018 margin could fall to just 11.3%, and that single-digits are possible if there are additional difficulties in bringing new resources online.
Dive Insight:
The grid operator for most of Texas has acknowledged that reserve margins are falling, but according to Gutierrez, the decline is more precipitous than thought.
"We're seeing continued pressure for retirements, given the low prices experienced in Texas over the past several years," Gutierrez said during the company's second quarter earnings call. "On the supply side, we continue to see delays in new builds with actual megawatts brought online coming in well below expectations."
But the fundamentals in this market are strong," Guiterrez said, referring to demand. Weather-normalized demand growth in the region hit 2.3% over the last year, he said, "which is well above the flat to negative growth of every other competitive market in the country."
The company reported second quarter income from continuing operations of $99 million. Adjusted EBITDA for the first six months of the year was just over $1 billion.
The reserve margin in Texas is falling, but Guiterrez' comments indicate NRG sees that slide happening faster than predicted. For this summer, the grid operator expects summer demand to peak near 73,000 MW, while total generation will be close to 82,000 MW. But reserve margins will likely fall to about 9.6% in 2027, ERCOT said earlier this year in its Seasonal Assessment of Resource Adequacy report.
