Tag Archives: Texas PUC

Latest Brattle Report Suggests Either Energy-Only Market or Capacity Market will keep lights on in Texas

In a long-awaited report ordered by the Public Utility Commission, the Brattle Group’s study entitled “Estimating the Economically Optimal Reserve Margin in ERCOT” was released last week and showed that Texas has many options to keep the lights on, including potentially doing nothing.

The study was ordered by PUC Chairman Donna Nelson to determine the most economic reserve margin – literally the amount of supplies over the amount of demand – in Texas. The answer? A reserve of only 10.2 % would be the most economic approach and the good news is based on normal weather patterns Texas’ market would actually provide a 11.5 percent reserve margin in the coming years. In other words, in purely economic terms, Texas’ energy-only market would provide reliable and economic electric power. In fact, in normal years, one would expect less than an hour of reliability issues out of 8760 hours in a year.

Nonetheless, the study also presented an alternative market structure, and suggested that a 14.1 % required reserve margin would be more reliable long-term though slightly more expensive to maintain. The study did suggest that in extreme weather situations – like the 2011 heatwave – the 14.1% required reserve margin would be cheaper during that year because energy prices would  volatile in any energy-only market. Thus, overall a capacity market during an extreme weather year would cost consumers $3 billion less because of lower power outages, while during a normal year, a capacity market would be about $400 million more expensive.

Table. What the Brattle Study Says about the Reserve Margin

Category Energy-Only Case Capacity Market Case Difference
Equilibrium Reserve Margin 11.5% 14.1% 2.6%
Loss of Load Events Per Average Year 0.33 0.23 (-.1)
Loss of Hours Average Year 0.86 0.23 (0.63)
Energy Price  -$/MWh $58 $48 (-$10)
Capacity Price ($/kW-yr) $0 $39 $39
Total Customer Cost ($B/YR) $35.7 $36.1 $0.4
Extreme Weather Year Energy Price $99 $65 (-34)
Extreme Weather Year Capacity Price 0 $76 76
Total Customer Cost (Hedged) $44.7 $41.5 (-3.2)

It is important to note that the Brattle report – like all economic studies – made assumptions about load growth, weather, the impact of demand response, and the amount of wind generation at peak – all of which can be challenged. As an example, the study still assumed that wind production only generates 8.7% of its total capacity during peak summer hours, a number that has been shown through repeated studies and actual data to significantly undercount the value of wind. Thus, the assumed margin are probably in reality higher than reported in the Brattle report.  But the essential message – that the energy-only market in most years would provide reliable and economic energy – at least gives policy makers breathing room and time to make any needed changes to the market.

The Sierra Club believes the answer is actually somewhere in the middle – that a required reserve margin slightly above the economically optimal reserve may be needed assuming that extreme weather events continue to face Texas. As an example, the report notes that assuring a reserve margin of 12.9% would meet the Southwest Power Pool’s reliability standards even in extreme weather events. We believe that assuring some build-out of new generation and new demand response programs – largely through expanded ancillary services — could assure this targeted reserve. Thus, the long-term solutions are not necessarily the imposition of a forward capacity market as has been imposed in markets like PJM and New England at great costs to consumers, but rather targeted programs meant to grow new resources like energy efficiency, demand response, energy storage and solar to meet Texas’s growing electric demand and supply needs. Paying older power plants a capacity payment just for being around is not the way to meet these new needs.

Texas will need to make significant investments in new transmission grids, continued smart meter development and other technologies like energy storage and demand response, while making the market work for these new technologies. It will also need to economically retire its older, dirtier power plants and transition to cleaner forms of energy. Look for our solutions soon!

In the meantime, PUC is expected to schedule a workshop on the Brattle report, as well as an additional study looking at the cost and benefit of each approach to keeping the lights on and ERCOT’s latest supply and demand projections, which are still being debated at the ERCOT Board of Directors.

Stakeholders line the hall at PUC to file comments on proposed changes to Texas’ s Energy Market

A variety of stakeholders lined the hall on Floor 8 of the Travis Building north of the Capitol in Austin today to file comments with the Public Utility Commission on what changes — if any — are needed in Texas’s energy market to help keep the lights on. With suggestions that electricity demand is growing, and supplies dwindling, and a couple of high-profile incidents in 2011 when Texas came close to brown-outs or black-outs, stakeholders have been discussing these issues at the PUC and ERCOT — which runs Texas’ electrical grid and market — for a couple of years. And there are at least two camps. On one side, are a majority of the generators — Luminant, NRG and Calpine, but also Austin Energy and Xcel — who argue that without a new Forward Capacity market to pay generators not only for the energy they produce when they produce it, but also for the capacity they have or promise to have, there will be no incentive to build new generation to meet demand. Many markets in the US have such a capacity market, and it does provide extra cash to generators (as well as to demand response to lower demand), though actual new construction has been limited in most markets. On the other, are environmental and consumer organizations like the Sierra Club, Public Citizen, EDF and AARP, large industrial and municipal  consumers like HEB,  Shell, the Texas Industrial  Energy Consumers and the Steering Committee of Cities Served by ONCOR — who are concerned about higher electricity prices and the potential that a capacity market will only help keep older generation units on longer, but not guarantee new generation. And perhaps another group — like CPS Energy, Golden Spread Electric Cooperative and GDF Suez Energy — who are not convinced a capacity market is needed, but are not opposed to some additional changes. Today was the deadline to respond to literally dozens of questions from Chairman Nelson and Commissioner Anderson — one a capacity booster the other a skeptic — on what we all thought.

The Sierra Club did file comments — some 25 pages long — that said: No capacity market needed — too expensive, too complicated and no guarantees. But we do think that some changes may be needed, and the best way is to do short-term competitive contracts through the Ancillary Service market at ERCOT. Since most of our “problem” is for a few hours a year on a cold winter morning or hot summer day, an extra Supplemental Reserve Service contracted a year in advance could help both those building peaking plants, or providing solar plus storage capabilities or those able to turn down demand could participate, helping to avert any issues before they arise. Other changes already occurring at ERCOT — such as allowing “loads” to bid into the energy market — and turn down demand when prices spike — should be allowed to move forward. The Comptroller of Public Accounts must begin rulemaking to adopt 2012 energy codes so that new buildings in Texas are energy efficient. PUC should adopt new rules on interconnection of distributed solar and require that excess energy be paid a fair market rate.

indeed, ERCOT is in the middle of redoing both their ancillary service market and their demand and supply forecasts and it may well turn out that there really is no big crisis at all. Actually the real crisis is that energy companies like luminant, NRG and Calpine are not making as much money as they would like!

Stay tuned for more in this ongoing saga. For a copy of our comments, see here..