NRG, Calpine propose market fixes to avoid ‘subversion’ of ERCOT model

Low and negative electricity prices in the ERCOT market are stoking concerns that Texas may not be able to attract sufficient new generation to ensure reliability. In March, the CEO of another grid operator, ISO-New England, told Utility Dive he sees the Texas model as “very vulnerable” in the long run.

Calpine and NRG pick up on those concerns in their new white paper, which is written by William Hogan of the Harvard Electricity Policy Group and Susan Pope of FTI Consulting. They say the lower prices are due to both low gas prices and subsidized wind generation.

“2016 natural gas prices in ERCOT were at their lowest level for 15 years,” they wrote, “and … the average real‐time price in 2016 of $24.65/MWh was the lowest on record for ERCOT.”

Because Texas has no capacity market, generators make their revenues in the shorter-term energy market. Typically, they rely on scarcity pricing events — which can pay up to $9000/MWh during periods of high demand — to cover the costs of their plants.

But the influx of subsidized wind has cut down on those scarcity events, PUC Chair Donna Nelson said at an energy conference in March.

“Last summer, for the first time, we saw days with high demand where we saw about 4,000 MW of wind online,” she said. “Now, that’s not enough where you can count on wind to always be there, but it is enough to remove the scarcity pricing.”

To counteract that, NRG and Calpine propose fixes to the ORDC to better take into account subsidized renewables. Wind and solar generation are artificially inflating ERCOT’s reserve margin, they argue, because they are not dispatchable, and so the ORDC should not take them into account when determining scarcity events.
Read full article at Utility Dive