Supply and demand on the grid must always remain balanced. In ERCOT, the most challenging time for this exacting equilibrium typically occurs during peak load on hot summer evenings, when soaring air conditioning demand meets declining solar generation and depressed wind generation. This year, ERCOT has persistently seen record-high loads, which has made balancing the grid more tenuous and has resulted in systemwide pricing volatility and the issuance of energy conservation alerts. Today’s Energy Market Insight will examine the role that wind generation plays in maintaining adequate reserve margins in ERCOT and the resulting effects on grid reliability when such generation doesn’t play out according to expectations.
A combination of ongoing population growth, surging oil & gas production, and increasing cryptocurrency mining has pushed demand for electricity across Texas increasingly higher over the last decade. As load in ERCOT has grown, capacity has responded, however rather than seeing a buildout of more thermal generation, renewables have led the way instead. Wind capacity within ERCOT has grown at a CAGR of 13% per year over the last decade, rising from 9.9 GW in 2012 to over 33.6 GW today. Meanwhile, net coal and gas capacity has barely budged, rising only 2.3 GW total over the same period, from 83.6 GW to 85.9 GW. Before each calendar season, ERCOT publishes the Seasonal Assessment of Resource Adequacy report (SARA), which provides a forecast of the expected contributions of various systemwide generation resources during peak load events. As shown in the chart below, as intermittent resources have grown to become a larger share of ERCOT’s generation stack, their significance in contributing to adequate system reserves to meet demand during these events has also grown.
Given wind’s large share of the intermittent generation mix within ERCOT, adequate wind performance during peak load events is especially important to maintaining sufficient system reserves. A shortfall in wind generation during these events may lead to adverse consequences for grid reliability. In a recent example, a mid-July lull in wind generation this year produced multiple days of tight grid conditions and forced ERCOT to issue conservation alerts. Meanwhile, settlement point pricing quickly spiked to the systemwide limit of $5,000 in a desperate call for additional generation.
The chart below shows the range of actual generation performance of wind resources relative to their expected seasonal capacity contributions (per SARA) during daily peak load events since 2018. While day-to-day performance is quite volatile, the averages presented show a wide variation in wind output during peak load events relative to expectations, especially during the hot summer months. While most of this summer’s wind generation has been significantly exceeding expectations, in the mid-July example detailed above, systemwide wind generation fell to just 6.3 GW on July 11th and 6.8 GW on July 13th, both representing total wind capacity factors of less than 20%. These figures fall far short of the expected summer 2022 peak wind contribution of 9.4 GW reported by SARA, which means necessary generation must be provided by another source to make up the shortfall.
So far, the outsized power demand observed this year hasn’t shown any sign of abating. This begins to raise some interesting questions about the late-summer months and upcoming shoulder season, a period that historically shows the greatest variability in wind generation during peak load events in ERCOT. The following chart presents the hourly intraday distribution of wind generation for last August. While the expected wind contribution (provided by SARA) generally falls within the middle of the actual August 2021 wind generation distribution for peak load hours 15-17 (3pm-5pm), the high variability in generation means wind cannot always be guaranteed to be online at expected levels during times of peak load.
As summer 2022 drags on, how might a convergence of late-summer factors like high demand and low wind play out on system reserve margins? Let’s use some figures directly from ERCOT’s latest SARA report to find out. Beginning with ERCOT’s base case, including 87.3 GW of available resources and 77.3 GW of peak demand, we’re left with a little under 10 GW of reserves and a reserve margin of around 13%. However, after layering on a few adjustments to this calculation, including a sudden lack of wind generation and a surge in demand (as might be expected during a late-summer heatwave), the system begins to fall short. Such a scenario could require emergency action by ERCOT to stabilize the grid, first by employing various levels of demand response and other emergency services, then, as a last resort, turning to controlled outages to rebalance supply and demand and restore an appropriate level of system reserves.
As demonstrated by ERCOT, as the fuel mix across many of the US’ balancing area authorities continues to diversify and grid operators utilize ever-increasing amounts of intermittent generation to meet their need for power, supply and demand dynamics may grow increasingly complicated and require operators to increase scrutiny of the character and performance of the generation resources used to support grid reliability.