Texas energy supply might not keep up with growing demand, especially if dirty power plants have to close due to new federal air pollution mandate, says Texas grid operator ERCOT; officials say electric rates too low to spur expansion

Bdebbie Garcia

Bdebbie Garcia

Oct 7, 2011 – Industry Intelligence

LOS ANGELES , October 7, 2011 () – Texas might face an energy deficit if power-generating capacity doesn’t expand fast enough to keep up with growing demand and offset the possible shutdown of dirty power plants due to the new federal air pollution mandate, said the state’s grid operator, reported Reuters on Oct. 6.

The Electric Reliability Council of Texas (ERCOT) is further concerned because by 2015, the power available for Houston, San Antonio and Dallas is expected to drop below a 13.75% reliability target.

Texas’ power supply is further threatened by cheap natural gas, tight financial markets and stricter federal environmental rules that crush the prospects of new investment, said delegates at a conference held this week by the Gulf Coast Power Association.

Power prices are also proving to be a disincentive to investment in ERCOT, said many officials at the conference, Reuters reported.

ERCOT’s approximately US$45 per megawatt hour forward power price for 2012, is “well below the $70-plus” needed to support capital spending for new gas-fired power facilities in the coming years, said Kamir Barbir, senior VP of strategy and risk at IPR-GDF Suez NA.

Texas power plants also are only paid when they produce power, unlike the system used by PJM Interconnection LLC in the eastern U.S. and elsewhere that pays generators to be available even if they do not operate, Reuters reported.

Some conference participants called for changes in the pricing to pay for secondary power when supplies are short and for more incentives for large companies to reduce energy demand during shortages.

Others suggested doubling the $3,000 market cap for real-time power as a way to encourage more capital investment, reported Reuters.

Although critics said that the state’s inability to maintain strong power reserves is a sign that market deregulation has failed, state regulators countered that the system averted widespread power outages this past summer.

During the summer, the state’s hottest temperatures on record caused power consumption to reach a new high of 68,379 megawatts on Aug. 3, up 2,600 MW from the previous summer, according to ERCOT.

The grid operator had to declare six power emergencies in August and to curtail power to willing industrial customers on two days, Reuters reported.

The primary source of this article is Reuters, London, England, on Oct. 6, 2011.

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