Since April 2015, S&P Global Ratings has noted weakening conditions in the Electric Reliability Council of Texas (ERCOT). Following demand changes and continued price volatility, ERCOT has continued to face new challenges which have resulted in numerous credit downgrades and forecast revisions.
The duration and extent of weak ERCOT power prices now suggest a longer-term, secular challenge, which isn’t likely to reduce credit concerns in the near-term.
The report provides a much fuller analysis, however here are a few of the key points:
- The ERCOT power market has weakened significantly between 2014 and 2017, with power prices dropping to unsustainably low levels and crippling profitability for generators.
- The proliferation of new renewable installations, specifically wind generation, has also contributed to lower cash flows for conventional generators in the state. With the federal extension of the production tax credit (PTC) and investment tax credit (ITC), wind generation within ERCOT has grown substantially. At one point in November 2016, Texas’ wind turbines produced about 45% of the grid’s requirements. With $23/MWh in incentives, wind generators in ERCOT are able to bid in at negative pricing, hampering overall market prices.
- While there is no pressing incentive for the state of Texas to consider constructing a capacity market mechanism, bloated reserve margins (now 18% compared to a 13.75% target) and the absence of a capacity market could be troublesome for longer term stability.
For the full report: https://goo.gl/8XSCFO
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