How much new gas capacity does the Texas grid need?

Dan Testa (0:01)

Hello, and welcome to Energy Evolution, the podcast where we talk through the progress and setbacks of the energy transition with top industry experts and executives.

I'm Dan Testa. This episode is gonna be a little different because we're gonna be sharing a recording of a live podcast episode that I hosted at the Gulf Coast Power Association's Fall Conference in Austin, Texas on September 29th. Now the GCPA's Fall Conference is a three-day event where the leaders, planners and power producers in the Texas energy market, which is called the Electric Reliability Council of Texas, or ERCOT, gathered to hash out the major issues impacting one of the most dynamic power markets and biggest, fastest growing states in the US. The conference featured Texas lawmakers, regulators, CEOs and other stakeholders discussing what to expect in the upcoming legislative session, debating the need for a high-voltage transmission backbone and issues related to large load interconnection and affordability. In our live episode, I discussed the changing role of gas-fired generation in the market with executives from Constellation Energy and San Antonio Municipal Utility, CPS Energy, as well as with an S&P Global Energy research analyst. And we debated whether there needs to be a significant build out of new baseload combined cycle generation to meet growing demand in Texas, or if there are better options. Let's go now to the recording, where I began by laying out power market conditions during this past summer, and what that says about the strength of the Texas grid.

In recent months, ERCOT has seen record electricity demand while posting some of the lowest power prices in nearly a decade, due largely to the addition of renewables and storage, which is what we've been hearing about already today. Now, that might be good for customers, but it sure makes for a tough investment environment if you want to build a gas plant. That's where the Texas Energy Fund comes in, a $10 billion state-backed program designed to incentivize the construction of new dispatchable long-duration power plants, mainly natural gas, before the end of this decade. This price environment has also contributed to a situation where existing gas plants have become very attractive assets. So how do we think about the reliability of the Texas grid? And how much is the Texas Energy Fund helping at this point? Where do renewables and storage fit into this? And what are the prospects for building merchant gas plants look like without test support? Also, it's worth noting these issues of price signals not being enough for certain types of new generation are not unique to ERCOT. So another major question is, how does what's happening in Texas, compared to how other competitive power markets are trying to encourage new dispatchable generation? Joining me to help answer these questions today are David Dardis. He's Senior Executive Vice President and Chief External Affairs and Growth Officer at Constellation Energy, the largest independent power producer in the US. We're also joined by Elaina Ball, Chief Strategy Officer at CPS Energy, the municipal utility for San Antonio.

And rounding out our panel is Mason Lester, a principal analyst on the North American power team at S&P Global Energy. David, Elaina, Mason, thanks for being here. Okay, I want to start with a high level look back at the summer in Texas. ERCOT set an all, a new all time peak demand record of over 91 gigawatts in July, and then broke it again in August, and yet day ahead on peak power prices in August averaged just $35.52 per megawatt hour. The lowest August average since 2017

So what's going on? Is this a success story or is there something more complex happening?

What happened this summer? Tell us about where ERCOT is headed. Mason, maybe you can start it off with some context for what's driving these market conditions.

Mason Lester (3:57)

Sure. Thanks, Dan. Yeah, what happened in ERCOT this summer is it is really remarkable, to say the least, you know, a success story or not, but it's pretty incredible. We saw three things basically happen and Dan just kind of noted two of them. Peak demand record over five gigawatts compared to what we had seen previously.

Very low power prices. We're talking monthly averages in the high 30s, mid 30s. So very low power prices. And maybe most importantly, no EEA events. So the grid was operating efficiently and successfully. We saw high margins. We talked about this earlier today in the conference. And so those three things are really a success to the ERCOT market. And how did the market get here? Well, building new assets in ERCOT is easier than building anything else and anywhere else in the country, I would argue. In the last year, we've seen seven gigawatts of solar get built, seven gigawatts of new battery storage get built. And so this ability to build new generation has caused this environment where we've seen very low power prices at the same time of seeing peak demands grow by over five gigawatts. Now, I think the flip side of that is when you have low power prices like that, you don't get the investment signals that might be needed for new gas or dispatchable generation. And the forward prices maybe don't reflect load growth, which has been said a few times here in this conference already.