Coronavirus Impacts Muted in ERCOT, New Summer Uncertainties Arise

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Blog April 08, 2020

ERCOT operated business-as-usual for the majority of March through the early stages of the coronavirus pandemic, though lockdowns were eventually set via executive order from the Governor on March 19. Unseasonably hot temperatures in the South and Coastal zones kept overall demand levels very high despite impacts from business and school closures. In particular, the week directly following lockdown orders saw the strongest demand levels of the month, with 3 days peaking above 50GW (more than 5GW above the overall March average).

Figure 1: ERCOT Demand, Before and After Lockdown weekend. Source: ERCOT
Figure 1: ERCOT demand, before and after lockdown weekend. Source: ERCOT

Given these anomalous weather conditions, nailing down impacts from the coronavirus on ERCOT load carries a high degree of uncertainty. Our demand forecasters have observed reductions in morning ramp slope and severity similar to other markets.

Longer-term Market Impacts

The majority of the conversation around the coronavirus stays focused on two key factors with longer-term impact on the market:

1. Impacts of reduced oil production on Far West load levels

Not only is the Far West a major contributor to overall load growth in ERCOT, but this region happens to be one of the market’s major congestion hotspots. Load growth in this zone has been highly correlated with increased shale drilling and crude production over the past few years, with demand nearly doubling on average since 2015.

Figure 2:  Far West Load vs. Permian Basin Crude Production. Source: ERCOT, Genscape
Figure 2:  Far West load vs. Permian Basin crude production. Source: ERCOT, Genscape

The assumption of continuously growing oil production levels has made its way into ERCOT’s peak load forecast, but significant recent reductions in oil prices, production forecasts, and rig counts all cast serious doubts on the 5GW number produced by the ISO.

2. Impacts of a global recession on 2020/2021 peak load

Though the oil and gas industry partially propped up the Texas economy during 2008’s recession, no sector appears to be in the clear this time around. With just under 50% of ERCOT peak load typically made up of residential demand, reductions in commercial and industrial load (especially if stay-at-home policies linger through midsummer) have the potential to knock a few gigawatts off a forecasted 76.7 GW load peak.

Though stagnant (or weaker) load peaks coupled with higher solar capacity year-over-year carry downside implications on real-time scarcity pricing, it is worth noting that neither of the two EEA1 emergency events featuring $9,000 pricing in August 2019 occurred on the summer peak day. The combination of weak wind generation and a few unexpected generation outages were enough to send pricing over the edge. Considering this year’s shift in ERCOT’s Operating Reserve Demand Curve (ORDC), which increases the amount of price adder at earlier levels of reserve scarcity, risks heading to this summer continue to be mixed, but stay highly dependent on the coincidence of strong load with low wind.

As the coronavirus pandemic continues to evolve, our team will be providing clients with real-time updates. To learn more about our services or to speak with an expert, please click here.