HOUSTON — Texas power demand won’t grow as quickly as expected, tempering fears that the state’s growing population soon could challenge its generation capacity, according to calculations based on new data from grid planners.
The calculations indicate that Texas’ power reserves will exceed targets until 2020. UBS Global Research made the power reserve calculations using revised demand projections released this week by the Electric Reliability Council of Texas, which manages most of the state grid.
“Using the latest demand projections would indicate supply is only ‘inadequate’ in 2020 — and even then, marginally shy,” UBS Global Research wrote in a research note issued Friday morning, observing that earlier projections showed reserves falling short beginning in 2015.
ERCOT’s lower demand estimates resulted from changes in data used to model power demand. The new model relies less on certain economic statistics that the council said are weaker predictors of power demand than they have been in the past.
Ken Anderson, a member of the Public Utility Commission of Texas who has been skeptical about ERCOT projections of power needs, also used the new ERCOT data to make power reserve calculations. He said the grid operator historically has overestimated demand on the grid during peak power use.
“They over-forecast the peaks,” said Anderson.
More power reserves
The new data could shift the direction of debates about whether Texas needs to revamp its power market structure. The Electric Reliability Council tries to maintain an excess power reserve margin of at least 13.75 percent. Utility commissioners have discussed setting a mandatory reserve margin.
The state’s power reserve margin could shift well above the 13.75 percent bar in future years, based on calculations that use the new demand numbers and ERCOT’s most recent generation supply forecast, issued last May.
According to these calculations, the reserve margin moves up this year from 13.8 percent to 16.7 percent. By 2017, the margin hits 17.9 percent, up from the once-forecast 10.5 percent. It is not until 2019 that the margins drop down to 13.6, still much higher than the bleak 7.4 percent margin that had been forecast before the new data.
The forecasts are based on current power generation. New power plant construction planned over the next five years could further increase the margins, Anderson said.
ERCOT’s new demand numbers come from a review of its forecasting methodology by Itron, an energy consulting firm.
Revamping the power market
The numbers could inform a debate under way in Texas about whether to change to a capacity market, in which generators are paid to keep power generation capacity available, regardless of whether it is used.
Generating companies and other advocates for capacity markets have argued that the current system, known as an energy-only market, fails to compensate utilities adequately for generation, because it only pays them for electricity produced. That will discourage new power plant construction and could cause capacity to fall short in the future, they say, and have pointed to the prior forecasts as evidence.
Critics of capacity markets say that the payments to generators would be costly for ratepayers without guaranteeing new power plant construction. They also have expressed skepticism over some of the prior demand and capacity projections.
The projections underestimate efficiency improvements, according to the criticism. Skeptics also assert that generating companies don’t make construction decisions as far in advance as the time period covered in the forecasts, which means capacity estimates more than about five years out are unreliable.
Meanwhile, utilities investors are watching closely for signals on how the debate will play out.
“The Street remains fixated on whether the state will pursue a capacity construct,” UBS wrote in its note.
Anderson, who has challenged the need for a capacity market, says the numbers are evidence that the existing market is working as intended.
“Total energy used is growing faster than the peak, which means our market is doing what it was designed to do and is becoming more efficient,” Anderson said. “Our current market design is encouraging more efficient use of electricity — we are using as much, but at times other than peak.”
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