* ERCOT revises peak use based on slower state economic
* Grid report drops 2,300 MW of proposed generation from
* ERCOT sees one new coal plant online in summer 2013
By Eileen O'Grady
HOUSTON, Dec 10 The prospect for rolling
blackouts remains high in Texas in coming summers as the state's
electricity supply fails to keep pace with growing demand, the
state grid operator said on Monday, despite wholesale market
changes made this year to encourage investment in new power
The Electric Reliability Council of Texas (ERCOT) said the
state's electric power reserve margin - a cushion against
blackouts - will be 13.2 percent next summer, below the agency's
minimum target of 13.75 percent.
ERCOT's latest reserve-margin forecast falls each year
through 2022 even with the addition of some new power plants and
the return of aging "mothballed" units in the summer, according
to the report.
A lower reserve margin increases the chance of a power
outage from ERCOT's target of once in 10 years.
After a boom in power-plant construction in the early 2000s,
falling wholesale power prices, tight financial markets and a
growing supply of wind power forced a number of developers to
cancel or delay plans to build new nuclear, coal and even some
natural-gas fired generation.
A dearth of new construction and two extremely hot summers
strained power supplies in the state in 2010 and 2011, adding
urgency to a regulatory discussion about changes needed in the
state's deregulated power market to encourage new plants.
In the past year, the Texas Public Utility Commission has
approved several market design changes including raising the
price cap for wholesale power in times of scarcity, but the
changes have not been enough to raise prices to a level that
would allow generators to invest in new power plants, generation
owners and developers said.
Texas regulators are divided over a long-term solution to
encourage new generation.
"The projected reserve margin for summer 2013 has dropped
slightly (from ERCOT's last report in May) but we are seeing
healthier reserve margins in future years," said Trip Doggett,
ERCOT chief executive.
That's because ERCOT lowered its peak demand beginning in
2013 and beyond, based on a slower statewide growth model.
Annual power demand growth was pared to about 3 percent from
more than 4 percent.
The closely-watched Capacity, Demand and Reserves (CDR)
report calls for the reserve margin to shrink to 10.9 percent in
2014; 10.5 percent in 2015; and below 10 percent in 2016.
Of the many economic scenarios ERCOT reviews, a low-growth
forecast was used as a basis for this report, said Warren
Lasher, ERCOT's director of system planning.
"Based on the last six months of information, it appears
that the current economy in Texas is more closely tracking the
low-economic growth forecast from Moody's," Lasher told
reporters. "Even the low economic growth (forecast) leads to a
fairly robust economic growth in the three- to five-year time
Major power producers in the state include Luminant, a unit
of Energy Future Holdings, NRG Energy, Calpine
Corp, NextEra Energy and Exelon Corp.
Despite a difficult financing market, Dallas-based Panda
Power Funds is working to build two gas-fired plants in the
state, with the first expected to come online in 2014.
Calpine is also adding generation in the state.
Last week, NRG Energy said it canceled plans to build an
800-MW coal-fired plant, but it was never included in future
Other developers remain on the sideline, closely watching
PUC action before moving ahead on projects, some of which are
already factored in ERCOT's future reserve margin.
One such project is the proposed 1,350-MW Pondera King gas
plant planned near Houston. InterGen acquired the project in
2009 and ERCOT is counting on the project's output beginning in
2017 because it meets the current planning criteria.
However, InterGen is currently watching ERCOT market
changes, said Mark Iamonaco, InterGen's vice president of
"We think the biggest challenge is that the power revenues
generated in the market currently don't support financing and
operating new generation," Iamonaco told Reuters.
Despite a lot of discussion at ERCOT about tightening
criteria for new generation included in the CDR report to more
accurately reflect which projects will be built, the report has
not changed, Lasher said.
Since the May capacity report, ERCOT said it dropped
projects totaling 2,360 MW from the long-term outlook due to
changes in project status, including the 660-MW Coleto Creek 2
coal plant, the 1,240-MW Las Brisas petroleum coke plant and a
400 MW wind farm.
Another 2,305 MW have been added, including 1,309 in new
wind power projects, which are only counted at a fraction of
capacity based on historical output.
For summer 2013, ERCOT anticipates 961 MW of new supply: LS
Power's 925-MW Sandy Creek 1 coal-fired unit in McLennan County
which was delayed from last summer; and 36 MW from a storage
facility in Winkler County.
"Although peak demand is expected to grow less quickly than
previous economic predictions indicated, we should continue to
encourage new generation and develop more demand response
options," ERCOT's Doggett said, to address electric use during
summer when air conditioners run for extended periods.
One megawatt can supply about 200 Texas homes during the
highest-demand periods in the summer.