Reserve margins tighten in ERCOT as plant retirements loom

Dive Brief:

A new report from the Electric Reliability Council of Texas (ERCOT) says planning margins are tightening for summer 2018, but also concludes the fluctuations are a normal part of electric sector investment cycles.
The Capacity, Demand and Reserves (CDR) report factors in existing and planned generation resources and expected demand over the next 10 years. The analysis projects a 9.3% planning reserve margin for summer 2018, increasing to 11.7% by summer 2019 as more planned generation resources begin operating.
Compared to the previous CDR report in May, ERCOT expects a 7,200-MW decrease in overall generation capacity for next summer, primarily due to recent announced plant retirements and project delays.

Dive Insight:

More generation is planned in the Lone Star state to help to pad the reserve margin in coming years. Even so, a spike in power plant retirements has shrunk the safety net for electricity consumers for the short term.

The updated report projects a 9.3% planning reserve margin for summer 2018, increasing to 11.7% by summer 2019. In its report earlier this year, ERCOT said summer reserve margins were expected to fall from 18.9% in 2018 to 9.6% in 2027, likely due to load growth as the state's economy continues to grow.

"Planning reserve margins fluctuate over time," ERCOT CEO Bill Magness commented on the latest assessment. "We see these types of shifts as the ERCOT market experiences cycles of new investments, retirement of aging resources, and growing demand for power."

The grid operator expects a 7,200 MW decrease in overall generation capacity for summer 2018, which it says is primarily due to recently announced retirements, project delays beyond the summer 2018 peak demand period and other factors. The new report also includes almost 3,800 MW in new generation resources that began operating this year.

More than 14,000 MW of resources that meet the criteria to be included in the CDR are planned to be in service by 2020. ERCOT expects system-wide peak demand to grow by an average of about 1.7% annually over the next 10 years. The operator forecast peak demand for 2018 is just under 73,000 MW, a 1,175 MW decrease since the May report, likely spurred by a suite of retirement announcements.

This fall, generation owners in the ERCOT region announced plans to retire or indefinitely suspend operations of more than 4,000 MW of generation resource capacity by early 2018. In October, Luminant announced three large Texas coal plant retirements which totaled about 4,200 MW of capacity. In addition, Talen Energy plans to retire a 300 MW gas-fired unit.