ERCOT: Revised Load Forecast, Start-Date of Announced Units Could Push 2014 Reserve Margin Above Minimum Target

The ERCOT reserve margin in 2014 could exceed 13.75% based on updated load forecasts, reflecting more recent economic data, and the specific start dates of several new announced units scheduled to come online in 2014, ERCOT informed the Public Utility Commission of Texas.

Similar to a filing last month, in which ERCOT added to the baseline May 2012 Capacity, Demand and Reserves (CDR) report the impact of newly announced units plus mothballed units not included in the CDR, ERCOT has again prepared an analysis, using the May 2012 CDR as a baseline, with the new analysis considering newly announced units and a revised load forecast in light of witnessed economic activity. Notably, the new analysis does not include non-expected mothballed units, as the earlier report did.

Specifically, ERCOT's new analysis includes data that show the relative impact of using last year's "Base" economic growth forecast developed by Moody's Analytics as the basis for the Summer Peak Demand load forecast in ERCOT, versus using Moody's "Low" economic growth forecast for developing the Summer Peak Demand forecast. Compared to the "Low" model, the Moody's "Base" model (which was used in both the December 2011 and May 2012 CDRs) included a more optimistic forecast of the prospects for a significant economic rebound, particularly for the years 2013 – 2016.

Link to ERCOT's analysis of reserve margin using Low economic forecast

"In the process of developing the December 2012 CDR, ERCOT has concluded that the near-term economic growth forecast in the 2011 Moody's 'Base' forecast represents the high end of a range of growth forecasts that could reasonably be included in the new CDR. Load growth in 2012 has actually trended closer to Moody's 'Low' forecast. While ERCOT will not finalize its December 2012 CDR until it receives the updated annual forecasts from Moody's Analytics, ERCOT believes that the future Summer Peak Demand numbers in the December 2012 CDR will be based on an economic forecast that falls within the range between the 2011 Moody's 'Base' and 'Low' forecasts," ERCOT said.

"The adoption of a load forecast based on the lower end of this range would lead to an increase in anticipated reserve margins, as the forecast would anticipate the need to serve less load using existing or new generation resources than would be needed in higher-growth scenario. Even without accounting for the addition of generation resources since the May 2012 CDR, a revised economic forecast will impact the reserve margin levels estimated in the new CDR," ERCOT said.

"When recently announced generation additions are combined with a lower load forecast, anticipated reserve margins increase," ERCOT said.

"Since the May 2012 CDR, three combined-cycle plants included in the CDR have begun construction (Panda Temple 1, Panda Sherman, and LCRA West Gen [Ferguson Unit Replacement]). All three of these units are on aggressive construction schedules and currently are scheduled to enter commercial operation in the third or fourth quarter of 2014. The combination of one or more of these units entering test-startup mode during the peak season of 2014, combined with more moderate economic growth than assumed in the May 2012 CDR, could result in an effective reserve margin for 2014 that exceeds the current 13.75 percent target. Since the reserve margin is based on Summer Peak Demand, the contribution of these units to the reserve margin for a particular year depends on when they are able to provide generation (i.e., they are not included in 2014 if they are not expected to meet demand during the summer of that year)," ERCOT said.