In the months and years ahead if anyone in Texas asks where demand for gas among power generators has gone, the answer will be blowing in the wind.
Thanks to a renewable portfolio standard, subsidies and a pro-business regulatory environment, Texas leads the nation in wind power capacity. It also relies more heavily on gas-fired generators (65% of generating capacity) than the rest of the country. As Texas grows its wind capacity — largely on the back of a planned power transmission buildout — gas-fired intermediate and peaking generators will see reduced demand for their output. Baseload coal and nuclear generators will be impacted as well. How this plays out will largely be shaped by transmission constraints and their elimination, as well as wind power’s intermittent and counter-peak character, i.e., there’s more of it at night, said analysts at Tudor, Pickering, Holt & Co. Securities Inc. (TPH).
The Lone Star State has about 8,000 MW of wind power capacity, which accounts for 10% of total generating capacity and about 5% of power produced in the state, according to a new report by TPH. As transmission constraints fall away due to development fostered by the state’s competitive renewable energy zone (CREZ) program, another 10,500 MW of wind capacity will be added by 2013. Wind will then hold 20% of Texas generating capacity and represent 15% of power produced, TPH said. However, the breeze is already being felt.
“The addition of wind in Texas is already lowering power prices, even with wind output limited by transmission constraints,” the TPH analysts wrote. “Market-clearing heat rates have dropped by about 10% (1.2 MMBtu/MWh) since 2005.”
Power generation demand for gas in Texas is about 3.2 Bcf/d. If no incremental wind generation is added, this would grow to about 3.3 Bcf/d by 2013, the TPH analysts said. However if, as TPH assume, wind capacity grows to 18,500 MW by 2013 and wind power displaces gas-fired generation 75% of the time, the gas generation fleet capacity factor in the Electric Reliability Council of Texas (ERCOT) falls from 30% to 21%, and gas demand from power generators falls about 0.5 Bcf/d.
TPH analysts aren’t the only ones predicting that wind will blow down gas demand. “National growth in gas consumption will be significantly reduced by the growth of wind power,” wrote analysts at Bernstein Research last week. “The growth of wind power in ERCOT over the next three years will markedly lower the consumption of gas and coal by conventional generators. We estimate the reduction in annual gas consumption to be equivalent to 12.5% of the average annual growth in gas consumption nationally over the last five years.
“The growth in generation from U.S. coal and gas-fired plants will be modestly reduced. The rapid growth of wind power in Texas will slow the annual growth in gas-fired generation in the United States by some 7.6%, and national growth in coal-fired generation by 4.2%.”
By modeling last summer’s power market with no transmission constraints, the TPH analysts found that the presence of 6,500 MW of dispatched wind capacity lowered power prices by $15/MWh during off-peak times and by $20/MWh during on-peak periods. However, because of transmission constraints the actual impact of wind power is less. Constraints limited dispatchable wind output to about 4,500 MW, resulting in a more modest downward market impact of $10/MWh during both on- and off-peak periods.
However, assuming that the state’s CREZ program eliminates transmission constraints and projected wind capacity is constructed, a gust of 18,500 MW of wind power will hit the Texas market in 2013, pushing marginal off-peak power prices down by $25/MWh (42%) and cutting on-peak prices by $30/MWh (33%), the TPH analysts wrote.
Due to its intermittent nature, though, wind isn’t always available when needed and wind power doesn’t replace other dispatchable generation but rather reduces its run times. If unconstrained, about 20% of total wind capacity is available during peak periods, and average wind generation during off-peak is about 40% of capacity, the TPH analysts wrote. This serves to further mitigate the market impact of wind power.
The downward impact on prices is $15/MWh during off-peak periods and $7/MWh during on-peak periods. In this case the impact on gas-fired intermediate and peaking generation is less than the impact on nuclear and coal baseload generation because there is relatively less wind power available during the traditional run times of the peakers.
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