ERCOT Lurches Towards Crisis

The call on U.S. electricity is becoming more acute as the need to power data centers grows. To supply that electricity, however, a significant buildout of energy infrastructure will be required. Unfortunately, the supply side of the equation is facing strong headwinds. No ISO illustrates this more than ERCOT, as its recent load forecast is calling for peak demand to almost double by 2030, attempts to aid natural gas-fired power plant construction are off to a stuttering start, and tariffs and multiple Texas state bills are looking to handicap the economics of renewable generation. With this in mind, today we’ll look at ERCOT’s most recent load outlook and lay out a simple case as to why Texas is headed towards energy scarcity and an increasingly unstable electrical grid.

My goal in this piece is to provide a simplified illustration of the inadequacy of energy supply in ERCOT to meet its demand outlooks. In doing so, I have made some simplifying assumptions; the most important of which is that I have not included any transmission limits in the analysis. There is an argument on both sides whether this would exacerbate or mitigate the situation, but I will leave that discussion for another time. In any case, ERCOT has plans to grow its transmission network, as we have outlined previously.

In April, ERCOT released its latest load outlook. Due to recent state regulations, they are required to include all proposed data-center loads that have shown sufficient interest in connecting to the grid. This comprises ERCOT’s Unadjusted forecast. However, like any infrastructure buildout, new load projects will be delayed or cancelled, so ERCOT also provides an Adjusted forecast that haircuts the Unadjusted forecast based on several ERCOT assumptions. Below is ERCOT’s expected monthly peak load for its 2025 Adjusted and Unadjusted forecasts compared to forecasts from the last two years.

While its latest Adjusted forecast is actually a step down in peak terms compared to its 2024 outlook, ERCOT’s Unadjusted and Adjusted outlooks expect almost a tripling and doubling of peak load, respectively.

Let’s turn to the supply side. The following graphic shows historic capacity and load in ERCOT. If we assume ERCOT wants to maintain historic reserve margins, capacity will need to grow in each scenario along the dotted blue lines.

The graphics below show cumulative capacity needs; however, let’s look at this in terms of required new capacity compared to today, starting with the more unreasonable of the two scenarios: the Unadjusted forecast. The solid black line shows the capacity required to maintain margins, while the colored areas show solar, wind, and battery storage that is currently under construction. For the sake of our experiment, let’s assume tariffs and other state hinderances prevent new projects getting built. This is not a realistic assumption, but it will help put bookends on both scenarios’ shortfalls of capacity.

In the Unadjusted scenario, capacity shortfalls begin to materialize this year, which would cause a tightening in ERCOT’s reserve margin. That shortfall accelerates as new load is connected to the grid, eventually resulting in a shortfall of 158 GW in August 2030. This shortfall could be met by an additional 217 GW of solar or an incremental 26 Bcf/d of gas-fired power plant demand; but, given that total U.S. dry-gas production is currently about 105 Bcf/d, an increase of up to a quarter of that to serve Texas alone is hard to picture.

The more reasonable, but still challenging, Adjusted forecast is shown below.

In this case, if projects under construction make their way to market on time, ERCOT can maintain margins through 2026. However, by 2027, we start to see a capacity shortfall that will need to be met either by additional renewable buildout, increased natural gas-fired generation, or a combination of both.

Even in the more moderate Adjusted scenario, natural gas could see up to 9.4 Bcf/d of incremental demand by Summer 2030. However, natural gas is not an infinite commodity that can be relied on wherever and whenever. That is especially true given the expected boom in LNG exports. Markets will always find a way to balance, but the question is, how painful will it be? If this load growth does materialize, expect EROCT’s grid to become increasingly hard to balance and ERCOT’s ORDC price adders and gas prices to surge to squeeze out whatever demand it can. For even more in-depth analysis of electricity and natural gas markets, check out our comprehensive energy offerings.

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