All else equal, a higher reserve margin should mean less likelihood of certain kinds of reliability problems, as well as lower wholesale prices.
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Earlier this month, ERCOT released the December update to its Capacity, Demand, and Reserve (CDR) Report, and the findings in it are likely to come as good news for electric consumers.
ERCOT, also known as the Electric Reliability Council of Texas, is the operator of the state’s primary power grid. The organization’s CDR report quantifies the expected reserve margin — or “cushion” of capacity above expected demand — for the next five years. The reserve margin is expressed as a percentage.
All else equal, a higher reserve margin (which essentially equates to a greater supply of energy) should mean less likelihood of certain kinds of reliability problems, as well as lower wholesale prices. ERCOT’s CDR Reports are closely watched by ERCOT market observers because they often are cast as an indicator of the market’s health. For instance, in 2018 and 2019 the CDR Reports sparked concern because they showed reserve margins dropping below ERCOT’s targeted level of 13.75%, which is the capacity cushion that the organization believes it needs to operate the grid reliably.
Reserve Margin: 15.5 Percent
In this month’s CDR report, however, ERCOT projects reserve margins well in excess of 13.75 percent. For the summer of 2021, ERCOT projects that the system will have a 15.5 percent reserve margin. The margin likely would have been even higher if not for the cancellation or delay of certain solar or wind projects.
But even with those delays and cancellations, new utility-scale and rooftop solar installations are notable contributors to the projected reserve margin over the next few years, according to ERCOT.
ERCOT’s reserve margin in recent years was beneath its targeted level due to load growth and the retirement of a number of large coal units, among other reasons. This month’s report suggests that the wholesale energy market has responded to those developments. This should come as good news for Texas electricity consumers.
Chris Brewster, an attorney with Lloyd Gosselink, participates in ERCOT matters on behalf of municipalities.