ERCOT peakload records, Texas wind output may fall July 8-12; gas burn may fill in

The Electric Reliability Council of Texas on July 7 forecast record peakloads July 8-12, as a heat wave persists across the Lone Star State, which may coincide with declining wind output, boosting wholesale power prices and fuel demand by the system's natural gas-fired generation fleet.

As of the 1:30 pm CT on July 7, ERCOT forecast load to peak at 77.3 GW on July 7, just shy of the record of 77.5 set July 5, but the remaining peakload forecasts through July 12 range from as little as 77.8 GW on July 10 to as much as 81.3 GW on July 11.

The National Weather Service has issued heat advisories or excessive heat warnings for most of the eastern two-thirds of Texas, where most of the population resides.

The weather service forecast high temperatures across the state as follows:

• Austin: 102 F July 7, 104 F July 8-9; 105 F July 10, 104 F July 11
• Dallas-Fort Worth: 103 F July 7, 105 F July 8-9, 104 F July, 105 F July 11
• Houston: 96 F July 7, 97 F July 8, 99 F July 9-10, 99 F July 11
• San Antonio: 101 F July 7, 103 F July 8-9, 104 F July 10, 103 F July 11

Humidity associated with Houston's proximity to the Gulf Coast increases the heat index to 101 F July 7 and 105 F July 8.

Since June 1, ERCOT's population-weighted average cooling-degree days have averaged almost 25% higher than the corresponding periods of the previous five years, according to CustomWeather data.

As those temperatures peak July 9-11, the ERCOT's forecast average hourly wind output is slated to fall by about 11.3 GW, or about 67%, to about 5.4 GW.

Power market impacts

With demand peaking and supply weakening, wholesale power prices would be expected to strengthen, but real-time on-peak locational marginal prices during June's heat waves were relatively tame, as wind output was robust.

ERCOT systemwide hub real-time on-peak LMPs averaged 71.28/MWh in June, up from $33.60/MWh for the average of the previous five Junes, which had a range from $11.04/MWh June 21, 2020, to $367.79, June 5, 2018, according to data collected from ERCOT by S&P Global Commodity Insight.

As of 2:15 pm CT on July 7, however, ERCOT real-time on-peak LMPs averaged just $53.08/MWh, according to the ERCOT website.

ERCOT North Hub day-ahead on-peak power jumped $130 during July 7 trading to trade near $218.25/MWh for July 8 delivery on the Intercontinental Exchange. Meanwhile, near-term contracts moved down, as the next week July 11-15 peak contract declined $33.75 to trade around $203/MWh.

Strong wind generation in June helped mute the impact of Texas' historic heat waves on gas demand and spot gas prices in June. ERCOT generation data shows that daily average gas generation came in 35 GWh/d, or 6%, lower in June than the same time in 2021, in comparison to wind's 90 GWh/d increase.

ERCOT's wind fleet produced at an average hourly level of 13.4 GW in June, up from 9.7 GW in June 2021.

Gas market impacts

The combination of lower wind generation over the next few days and higher temperatures could open the door to a near-term surge in gas-fired power demand in Texas. S&P Global Commodity Insights forecast that Texas power burn will climb above the five-year average through at least July 12.

The higher power burn demand could help boost regional spot gas prices July 8-12, especially if wind generation comes in weaker than expected.

Spot gas prices in Texas rose in July 7 trading for next-day flows, preliminary settlement data from S&P Global Commodity Insights shows. East Texas benchmark Houston Ship Channel gained 11 cents to trade at $5.64/MMBtu, while Katy Hub gained 24.50 cents to reach $5.69/MMBtu.

One potentially mitigating factor is the ongoing outage at Freeport LNG in Texas, which could soften the impact of higher gas-fired demand on Texas spot gas prices. The unplanned outage, which started June 8, has taken the facility's entire capacity offline through at least September, injecting around 2 Bcf/d of looseness in the state's supply and demand balance.