Rising natural gas prices will likely mean an end to ERCOT’s all-time low energy prices, according to the Independent Market Monitor’s midyear review of the Texas grid operator’s market.

IMM Director Beth Garza told the ERCOT Board of Directors last week that real-time prices are up almost 40% over the first half of 2016, averaging $28.50/MWh, compared to $20.41/MWh during the same time last year.

The load-weighted average for all of 2016 was $24.62/MWh — the lowest ever since the nodal market’s implementation in late 2010. (See “IMM Year in Review: Low Prices, Windy, Lots of RUC,” ERCOT Board of Directors Briefs.)

Garza said the rise in prices is linked to a corresponding increase in gas prices, which have gone from less than $1.70/MMBtu in early 2016 — “The lowest gas prices I’ve certainly seen in my career,” Garza said — to pennies shy of $3/MMBtu this month. Gas prices averaged $2.45/MMBtu in ERCOT last year.

The Energy Information Administration has attributed the rising prices to an increase in exports to Canada and Mexico. The Mexican energy market in recent years has been replacing coal- and oil-fueled generation with natural gas.

The increasing cost of gas has also resulted in a decrease of its use for generation. Gas accounted for 35% of ERCOT’s fuel generation during the first half of the year, down from 44% for all 2016. Coal and wind sources have picked up the slack, increasing to 32% and 21%, respectively, through June, up from 29% and 15% last year.

Garza also noted that price spreads between ERCOT’s cheapest (West) and most expensive (Houston) zones have been increasing as well, from a $4 spread in the first half of last year ($18 to $22/MWh) to $11 through June 2017 ($23 to $34/MWh), because of increased congestion. ERCOT’s top 10 constraints have accumulated approximately $375 million in congestion costs, more than halfway to last year’s total of about $500 million.

“So, [there is] more frequent, more costly congestion going along with those higher prices,” Garza said in summation.

Much of that congestion occurs in the Houston zone. A constraint on a path that imports energy from the north has incurred more than $90 million in costs through the first six months, almost double its $49 million in congestion costs for all of 2016.

The Houston Import Project, a $590 million project scheduled to be completed by summer 2018, is expected to resolve much of the congestion. In the meantime, however, lines being taken out of service to enable construction of new facilities has exacerbated the problem, Garza said.

“I think that’s what we’re seeing this year,” she said.

ERCOT CEO Bill Magness said higher-than-expected congestion in the day-ahead market also resulted in a surplus in the congestion revenue rights (CRR) balancing account. The unexpected balance resulted in a $24.2 million credit to load in June.

Gas Production Affects Texas Grid

Todd Staples, president of the Texas Oil & Gas Association, said fracking and improved technologies that have reduced the cost of natural gas have also made the U.S. the largest producer of natural gas in the world.

Natural gas production has grown almost 30% since 2010, Staples said, with Texas leading all states by accounting for more than 27% of U.S. marketed natural gas production in 2015. The Lone Star State also has 90 Tcf of proven natural gas reserves, 26% of the nation’s total.

“Low-cost natural gas is the reason you’re seeing billions of dollars of capital investment in Texas for today and the long haul,” Staples said. “This capacity is the reason you see the strength of continued planned investment and development in Texas. This infrastructure, what we have in place today and what is planned for the future, is the reason we think we’ll have this continued growth.”

Much of the production takes place in the Permian Basin of West Texas. Staples said he expects “the Permian will be active no matter the highs and lows of the investment market.”

Warren Lasher, ERCOT’s senior director of system planning, said natural gas production, consumption and exports are causing localized growth in electric demand. He pointed to the natural gas extraction in the Permian Basin but also noted industrial demand near Houston and the several LNG facilities being built on the Gulf of Mexico.

“We’re working with providers in the area to ensure we’re meeting their demand,” Lasher said.

He said ERCOT is beginning a study to ensure the existing pipeline capacity can meet demand, given recent changes to both the natural gas system and the ISO’s grid. A 2012 assessment of the Texas region’s natural gas infrastructure found the existing pipeline capacity was sufficient to meet demand, even with the expected growth of natural gas generation capacity.

Recent staff planning studies have not identified any single points of disruption on the natural gas system that would have a significant impact on ERCOT generation capacity, Lasher said.

“It’s not an issue now,” he said, “because there’s so much pipeline capacity in Texas.”

ERCOT on Track to Finish 2017 $5M Under Budget

Magness said the ISO is projecting a $4.5 million favorable variance in net revenues at year’s end, based on current balances and the load forecast for the remainder of 2017. A $3.1 million savings in interest expenses for project funding is $3.1 million under budget because of minimal use of revolving lines of credit.

July’s record-breaking demand helped ERCOT erase $1.3 million of a $2.1 million unfavorable variance in system administration fees. The Texas grid has yet to break 70 GW this summer, “but there’s a lot of August yet,” Magness said.

Staff has forecasted a peak demand of 72.9 GW this summer, which would break last August’s record peak of 71.1 GW. (See Texas Heat Leads to more ERCOT Demand Records.)

While Texas has sufficient capacity to meet demand, more is on the way. Magness said ERCOT had received 306 active generation interconnection requests totaling 67.6 GW — including 30.2 GW of wind generation — at the end of June. The ISO had 19.3 GW of wind capacity in commercial operation as of July 1.

Magness also said the Aug. 21 solar eclipse will have a “likely minimal” impact on the ERCOT region, with much of it in North Texas. Ancillary services and the solar forecast will address the expected effects, he said.

However, the April 8, 2024, eclipse’s line will pass over the middle of Texas. “So that’s something to look forward to,” Magness said.

Board OKS 2 Revision Requests, SCR

The board’s unanimously approved consent agenda included two nodal protocol revision requests (NPRRs) and a system change request (SCR):

• NPRR822: Designates the procedure for identifying resource nodes as an “other binding document” instead of a “business practice manual.” It also adjusts the process for handling a retired resource’s nodes by allowing ERCOT to convert CRRs at that node to a different, nearby settlement point.
• NPRR833: Adjusts NPRR827’s language to account for the base-case model when ERCOT implements the long-term, automated change affecting point-to-point (PTP) obligation bid clearing. The NPRR updates the day-ahead market optimization engine to address situations where a contingency disconnects a resource node. The engine will pick up the PTP megawatts and distribute them to other nodes, instead of ignoring them in contingency analyses if that PTP sources or sinks at the disconnected point.
• SCR792: Allows ERCOT to send consecutive clock-minute average exceedances of balancing authority area control error limits to appropriate entities, and creates a situational awareness display in the information system’s public area showing the exceedances.

— Tom Kleckner