Analysis: ERCOT outlook masks plants' timing risk

OREANDA-NEWS. Much of the new natural gas-fired generation the Texas grid operator is counting on to meet growing electric demand in the state in 2018 has yet to start construction or even secure financing.

A 10-year supply and demand outlook issued by the Electric Reliability Council of Texas (ERCOT) this week projected a robust planning reserve margin above 17pc until 2021, meaning the region should have plenty of power to avoid price spikes or rolling outages when summer demand rises to keep air conditioners running. The capacity, demand and reserves report projects ERCOT's margin will exceed 21pc in 2018, thanks to 5,500MW of new gas generation, 500MW of solar and 10,000MW of wind.

But market participants are dubious of the report because it counts new gas generation not yet under construction and coal-fired plants that may be forced to retire under tougher emission rules.

Some say the report's assumptions only make it harder for developers to attract financing for new-build projects in an energy-only market.

NRG Energy chief operating officer Mauricio Gutierrez called the outlook "a best-case scenario requiring three assumptions to happen at the same time: low-load growth, incremental new supply and fewer retirements." "We are skeptical about this," Gutierrez told NRG investors today.

While ERCOT saw a lower peak demand in 2014, overall power use jumped 2.5pc because of strong oil and gas activity which has not slowed.

"We expect less-than-forecast new builds as market participants respond rationally to a very depressed forward market and we expect greater-than-zero retirements," Gutierrez said.

NRG is building a 388MW peaking power plant that will be on line in 2016, but is holding off on other gas plants for which permits have been issued.

The largest new-build project included in ERCOT's projected 2018 summer supply is the proposed 900MW Pondera King plant near Houston, a project acquired by Competitive Power Ventures.

But Pondera King is now on hold, awaiting financing, after initial construction activity, said lead project director Nathan Rushing. "We have told ERCOT our intention [is] to be there in 2018 and we are working as hard as we can to make that a reality," Rushing said.

Another project awaiting financing is the 700MW Indeck Wharton peaking power plant, which ERCOT indicates will be available in summer of 2017.

Representatives of three more gas plants, totaling 2,200MW, did not return calls to confirm the status of their delayed projects.

Included in ERCOT's 2018 supply are the 730MW La Paloma energy center in south Texas and the 785MW Pinecrest plant in east Texas, both developed by Coronado Ventures, as well as FGE Power's 703MW Mitchell County project.

Developers of one fully permitted gas plant canceled the north Texas project in April after being unable to find investors for the 1,750MW Greenville power station after the 2008 financial crisis. Cobisa had to ask ERCOT to remove the project from an earlier outlook report as the in-service date became uncertain.

Two projects that could bolster ERCOT's projection are not yet included in the outlook. Exelon plans to build two 1,000MW gas plants at existing sites for less than \$700/kV by June 2017, officials said. Exelon faces a tight timeline, given the projects have yet to secure air permits.