ERCOT studies analyze resource adequacy, investment

A May study issued by the Electric Reliability Council of Texas (ERCOT) foresees shrinking reserve margins and possible power shortages within the decade as Texas demand continues to grow – while a June 1 consultant’s report considers ways to increase generation investment.

“To ensure future electric reliability in the ERCOT region, we need to take immediate steps to address this issue — on both the supply side and the demand side of the resource adequacy equation,” said ERCOT CEO Trip Doggett in a news release.

Meanwhile, consultants at the Brattle Group released a report June 1 analyzing resource adequacy concerns and identifying options for better aligning market design and reliability objectives in the ERCOT market.

To inform ERCOT and the Public Utility Commission of Texas’ (PUCT) ongoing efforts to maintain resource adequacy, the Brattle study: (1) characterizes the factors influencing generation investment decisions; (2) evaluates the market outlook for supporting investment and resource adequacy at the target level; and (3) lays out options to enhance long-term resource adequacy while maintaining market efficiency in ERCOT.

ERCOT’s energy-only market worked well for years to support efficient operations and attract sufficient generation investment to maintain resource adequacy, but new investment is now impeded by low wholesale power prices due to low natural gas prices and an efficient existing generation fleet, Brattle said in a news release.

The Brattle analysis also shows that reliability targets could be achieved with a “significant increase in price-responsive demand that helps prevent load shedding but without eliminating high prices.” However, it would likely take several years before a sufficient level of demand response could be achieved.

The report discusses the advantages and disadvantages of four options for attracting greater investment should policymakers demand a higher reserve margin than the current energy-only market can be expected to deliver.

The authors also recommend various market design enhancements to better enable demand-side resources to participate in efficient price formation, as well as other measures to achieve efficient pricing during both scarcity and non-scarcity conditions. They recommend increasing the offer cap to $9,000/MWh or a similar level corresponding to the value of lost load when shedding load, though scarcity prices should start at a much lower level, such as $500/MWh, when first depleting responsive reserves, according to the Brattle report.

Scarcity prices would increase gradually as the severity of the event worsens, reaching $9,000 only when actually shedding load. Sam Newell, the lead author of the report and a principal of The Brattle Group, commented, “This would be more reflective of system costs and will help demand response participate in efficient price formation, which will ultimately support a more stable investment environment and system reliability.”

“Texans shouldn’t take the bait, this is worst possible time to put an extra burden on our families’ wallets,” said Cyrus Reed, Conservation Director of the Lone Star Chapter of the Sierra Club. “Instead of using our money to build more coal and gas plants, the PUC should implement their rules proposed to raise energy efficiency goals, goals which will reduce the demand for electricity and decrease our electric bills. It’s also time they start investing in the future of the Texas economy and approve rules that would require at least 500 MWs (about 400,000 homes worth) of renewable energy from resources other than wind be installed by 2015,” Reed said.

ERCOT’s May report focused on shrinking reserve margins

The newly revised capacity, demand and reserves (CDR) report shows a reserve margin of only 9.8%  as soon as 2014. That is well below ERCOT’s 13.75% target for generation capacity that exceeds the forecast peak demand on the grid. The 2014 outlook includes slightly more than 75,000 MW of power to serve anticipated peak demand of 68,403 MW.

By 2015, projected reserves drop to 6.9% with 76,623 MW of resources available to serve peak demand of 71,692 MW, according to the CDR report made public May 22.

The report provides a 10-year outlook based on anticipated peak demand, existing and planned generation capacity, and other long-term factors. Peak electric use in the ERCOT region is driven by high temperatures and economic conditions. The mid- and long-term peak demand forecast is based on a 15-year average weather profile combined with economic factors such as per capita income, population, gross domestic product and various employment measures.

Available generation will continue to grow despite CPS Energy‘s publicly announced decision to deactivate the two coal‐fired J. T. Deely units (845 MW) by 2018, the report noted.

About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.