ICF questions recent ERCOT moves on reliability

ICF International (ICF) believes that ERCOT could be making a mistake in adopting a Reliability Must Run (RMR) contract without adjusting the market structure more broadly, according to a white paper.

Such a move “fails to protect the market’s efficiency and price signals,” ICF said in a white paper distributed Nov. 2. The RMR adoption threatens to create excessive swings between excess reliability and under-reliability, according to the document published by ICF Managing Director Judah Rose and others at the firm.

“Buyers and sellers need to avoid being lulled into over-complacency and underestimating the remaining albeit suppressed risks of low scarcity prices, especially during normal or sub-normal wind conditions,” according to the ICF analysis.

On average, wind capacity contributes 16% of its total nameplate capacity to resources available at the moment of annual system peak typically during the August in ERCOT, ICF said in a footnote. The lowest is close to 3% and the highest, experienced in 2016, is 30%, ICF added.

The ICF white paper suggests that RMR agreements, as currently implemented by ERCOT, “distort proper market signals and ultimately may undermine rather than enhance reliability.”

ERCOT awarded an RMR contract on June 1 to the NRG Energy (NYSE:NRG) Greens Bayou unit 5, which was its first since 2011, and was considering awarding another one to the Calpine (NYSE:CPN) Clear Lake plant.

RMR contracts require generators to stay on line and not retire in exchange for cost of service regulation, IFC noted. The rule structure surrounding RMR units in ERCOT has been under increased scrutiny since ERCOT implemented the Operating Reserve Demand Curve (ORDC) market construct in 2014.

The announcement of the RMR contract for Greens Bayou brought renewed criticism, even from NRG itself, ICF said in the white paper.

“Stakeholders such as the Independent Market Monitor argued that the way that RMR capacity is dispatched unfairly depresses real-time pricing for other generators,” ICF said in the document. “While ERCOT considered a proposal that purported to help fix the problem with energy pricing, it was ultimately rejected.”

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.