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[Market Monitor] ERCOT Summer Electricity Grid Outlook Shows Increasing Strain – Increasing Prices Likely Ahead for Electricity Consumers

May 8, 2023 – ERCOT released its 2023 summer Seasonal Assessment of Resource Adequacy (SARA) report on May 3rd, a combination of rose-colored glasses and doom and gloom.

In the report, ERCOT is accounting for ~97,000 MWs of generation that will be available to meet the electricity demand this summer, which should give us more than enough to meet the needs of Texas during most days. Still, we could fall well short during low wind or solar production periods.

ERCOT’s large wind fleet adds considerable variability to resource output, and additional solar buildout over the past 12 months is exacerbating that issue. Source: ERCOT

The report considers the timing of peak demands in Texas, which typically occur later in the afternoon or early evening, and how wind and solar resources may not be at the maximum output during those hours. It also accounts for other generators that burn fuel to generate power, and we call those “thermal” generators. These dispatchable units are occasionally down for maintenance.

Electricity consumption in Texas is on the rise, with peak demand reaching over 80,000 MWs last summer and expected to be even higher this year even if the weather is more moderate.

Some of the growth in demand is coming from the increased oil & gas drilling out west, but we also see a lot of load from crypto-mining being added to the region.

With weather outlooks calling for warmer than average temps for the summer, the grid could face frequent tests.

Under extreme conditions, when peak use of electricity could reach ~86,000 MWs if wind and solar are well below their expected levels or we have one of those vital thermal generators break down, we wouldn’t have enough power to keep the lights on. This situation is not an exaggeration.

We are also keeping a close eye on new EPA regulations on power plant emissions which could limit some generators in Texas as soon as this summer. For now, a court order has those regulations on hold, but only time will tell how that shakes out. Most of the impacted generators are in the southeastern portion of the state, so the phrase “Houston, we have a problem” could have a new meaning.

In summation, we will likely have a very volatile and weather-sensitive price environment in ERCOT over the next four months. As we all know, Texas is always hot in the summer, but if the wind and solar production is not there, it could dramatically impact our need for power. Regardless, Tradition Energy will keep you informed as it plays out, but the more spikes we see this summer, the more we will see prices for 2024 and beyond rise, so contracting before it all happens might be a wise and prudent strategy.

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