By Mark Watson – Texas regulators, power company executives and trade association representatives on Wednesday described changes needed to enhance the Electric Reliability Council of Texas energy-only market’s resource adequacy as new technologies — especially renewable generation and storage — continue to grow.

A University of Texas Energy Week morning panel focused on Texas and ERCOT included a keynote speech by Public Utility Commission of Texas member Arthur D’Andrea, plus discussions featuring PUC staffers, and representatives of power generators, utilities, and trade groups such as the Texas Competitive Power Advocates.

Connie Corona, PUCT division director of competitive markets, noted that ERCOT ‘s reserve margin — the amount of resource capacity in excess of expected peak demand — in the summer of 2019 has been forecast to be 7.4%, down from 8.1% in this past December’s ERCOT Capacity, Demand and Reserves report, 11% for the summer of 2018, and 13.75% considered the minimum necessary to ensure the system has capacity-related blackouts no more often than one day every 10 years.

TCPA Executive Director Michele Gregg said, “As reserve margins go down, it becomes a bigger question about what are we willing to tolerate in terms of outages and what are we willing to pay for?”

To address concerns about resource adequacy, the PUC on January 17 decided to direct ERCOT to implement a change in the Operating Reserve Demand Curve that would, in effect, impose a scarcity pricing adder more frequently and by larger amounts, D’Andrea said. The first phase of the change raises the loss-of-load probability used in the calculation by 0.25 standard deviation in time for the summer of 2019. A second phase would add another 0.25 standard deviation to the loss-of-load probability for the summer of 2020.

‘Risk appetite’

John Dumas, Lower Colorado River Authority vice president of market operators, said the change is likely to lower the actual probability of a loss of load in the summer of 2019 from once every two years to once every 2.5 years and in the summer of 2020 to once every 3 years.

“We needed to value reserves because it’s those reserves that are protecting you against [sudden generation trips],” Dumas said. “The question is, do we have the right value for those reserves? The way we value them has all to do with what your risk appetite is.”

The change has been forecast to raise generator revenues by about $2 billion a year over the next five years.

“It’s government putting its thumb on the scale to spend a little more money to create a little more … supply to meet demand,” D’Andrea said. “By administrative fiat, we made a giant transfer of wealth from consumers to generators. Why would I do something so boneheaded? It’s terrible politics. The reason why we have to take these sorts of steps is that there are defects in ERCOT markets that, if left unchecked, could lead to rolling blackouts.”

One such defect is that electricity retail demand is not sensitive to price, because customers are generally on fixed rate plans and face no consequences when wholesale power prices reach extremes in scarcity conditions. Therefore, peakloads may be exacerbated to such an extent that existing generation — which has been suffering from relatively low prices due to various factors such as subsidies for renewables and cheap natural gas prices — cannot meet demand.

TCPA’s Gregg said, “The price incentives have been to continue to retire units and not invest in those that are still in the ground.”

As the economics of energy storage improves, it may at least partially address the problem of a lack of price-responsive demand, D’Andrea said.

“People in competitive markets are investing in energy storage currently,” Gregg said. “Is it happening as fast as some folks would want to see? Maybe, maybe not.”

Another factor that may help with this “defect” may be the decentralization of supply, as businesses and industries that currently keep generation on-site for backup power consider selling power back into the grid when wholesale prices rise, D’Andrea said.

Another Wind Record Set

“It has been a long time since our industry has had to digest this much change,” D’Andrea said.

For example, ERCOT ‘s wind generation recently hit a new record of 56% penetration “far more than anyone thought a long time ago that ERCOT could absorb without going down.”

“So far, the worry warts of our system — the little ‘c’ conservatives — have been proven dead wrong,” D’Andrea said.

Even as wind continues to grow, he said, “We all expect to see a big boom in solar in ERCOT ” over the next few years.

“In the interconnection queue, it’s pretty much wind and solar as far as the eye can see,” he said.

As these resources become more broadly distributed across the grid, the supply curve can be smoothed, as wind may blow more in one area than another at the same time, and geographic diversity also helps with solar power over the course of the day and in various weather patterns.

One consequence of that wind and solar growth is the need for peaking generators in the short term and perhaps energy storage as it becomes more economical, D’Andrea said, which is one reason for the decision to implement the ORDC loss-of-load probability change.

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