Oil and Gas

Texas wind generation creates power-market turmoil

HOUSTON, April 1 (Reuters) - Being the national leader in wind generation has created recent turmoil in the Texas deregulated power market.

Booming electric production from wind has created new headaches for power-market participants and the Electric Reliability Council of Texas (ERCOT), the independent agency that oversees the power market.

For instance, the unexpected loss of wind production amid changing weather conditions has been blamed, in part, for curtailment of electric service to industrial customers in late February and for real-time power prices hitting a market cap of $2,250 per megawatt-hour in early March, according to ERCOT.

In recent weeks, strong spring wind capacity has been trapped in West Texas as major transmission lines undergo maintenance to prepare for summer when power demand soars to run air conditioners.

The lack of transmission capacity to move wind power from sparsely populated West Texas to densely populated North Texas depressed spot prices in ERCOT’s West zone and created volatility for ERCOT’s “seller’s choice” -- a power product that typically tracks natural gas prices.

Wind turbines have been installed at a rapid pace across west Texas, pushing Texas well of second-place California with nearly 5,000 MW of wind generation, up from about 3,000 MW a year ago. Texas now posesses one-quarter of all the U.S. wind capacity, according to the American Wind Energy Association.

"It has taken awhile for the market to realize how much wind is coming, how quickly it is coming and what it means to have that much wind on the system," said Mark Bruce, director of regulatory affairs for FPL Energy, a unit of FPL Group FPL.N, the largest wind generator in Texas and the U.S.

Low prices and some negative off-peak prices “have been driven by the west-to-north congestion and the abundance of wind,” said Beth Garza, ERCOT’s manager of congestion analysis. Some real-time power prices in the West zone have gone negative as the grid operator is forced to cut generation in the West while paying to raise output in other zones to keep supply and demand in balance.

In response, ERCOT accelerated its effort to incorporate new computer tools to forecast changing wind resources, Garza said.

Some traders said price volatility is a spring phenomenon that may disappear in July. Others said the boom in wind power has changed ERCOT market dynamics -- at least for now.

“It’s the uncertainty that drives the wild swings in the spot market,” said one trader. “The forward market is saying this is going to be a persistent issue.”

An Oncor spokesman said maintenance on the west-to-north, Graham-Morgan Creek power line should be completed during an outage scheduled from April 12-17.

Rapid development of wind power in Texas is only beginning. Developers of more than 46,000 MW of new wind resources have requested studies to connect to the grid and regulators are working to identify major new transmission projects estimated at $3 billion to move as much as 24,000 MW of wind power from production zones to populated areas.

“There’s not anybody in North America that has experienced this much wind coming in this quickly,” said FPL’s Bruce. “We are going to have to learn our way through it.” (Reporting by Eileen O’Grady; Editing by David Gregorio)