Texas grid adds 9.1 GW of power capacity in 2022, reflected in summer 2023 forwards

Robust generation capacity growth in the Electric Reliability Council of Texas may be weakening the outlook for wholesale power prices in the summer of 2023, which had more than doubled between summer 2021 and summer 2022.

ERCOT approved almost 654 MW of generation, all renewables, for commercial operation in December, and another 2.9 GW of capacity neared commercial operation, increasing the grid's total operational capacity to 142.6 GW, up 9.1 GW from the end of 2021.

Another 2.5 GW, evenly divided among wind, solar, and battery storage, have signed interconnection agreements and financial security posted with start-up planned by the end of May, according to ERCOT's Capacity Changes by Fuel Type Charts, released Jan. 5.

Such robust capacity growth would tend to weaken pressure on power prices, and forward traders may already be taking this trend into account. S&P Global M2MS ERCOT North Hub on-peak forward indexes for June, July, and August averaged less than $84/MWh Jan. 6, compared with an ERCOT North day-ahead on-peak average of more than $124/MWh in June through August 2022. ERCOT North Hub is the market's most liquid pricing location.

From June through August 2021, ERCOT North day-ahead on-peak power averaged $50.60/MWh.

Supply and demand

ERCOT's renewables nameplate capacity totaled 54.5 GW at the end of December, and the summer-rated thermal capacity—gas, coal, and nuclear—totaled 88.1 GW. As wind and solar output typically varies widely depending on current conditions, planners typically do not rely upon summer-rated capacity calculations for such resources.

ERCOT's Capacity, Demand, and Reserves Report for 2023-32, released in November, included a forecast peak of 80.2 GW for summer 2023, well below the total expected thermal capacity, but up from the existing record peak of 80 GW, set on July 20, 2022.

S&P Global Commodity Insights forecasts no coal-fired generation to be retired in ERCOT in 2023.

Projects approved for commercial operation in December included 336 MW of wind, 266.1 MW of solar and 51.5 MW of battery storage, according to ERCOT's Generator Interconnection Status Report, released Jan. 3.

Another 1.2 GW was approved for synchronization, meaning the resources can and do supply energy to the grid but do not participate in power markets. This capacity includes more than 776 MW of solar, 325 MW of natural gas-fired capacity, and 99.1 MW of wind.

The last step before synchronization is energization, and the projects that met this standard include 497.3 MW of wind and 184.1 MW of solar.

Projects deemed inactive

In contrast, almost 613 MW of capacity was deemed by ERCOT to be inactive in December, because developers had failed to meet certain milestones during the month. These projects include 512.3 MW of solar and 100.6 MW of battery storage.

Developers canceled no projects in December.

The Capacity Changes by Fuel Type Charts indicated that almost 800 MW of wind had signed interconnection agreements and financial security posted, while solar and battery storage capacities totaling 791 MW each met the same standard. As these resources have near-zero marginal costs, they are considered price-takers and typically weaken cleared power prices.