Shared from the 7/23/2021 San Antonio Express eEdition

Officials planning overhaul to stabilize Texas grid

The leaders of the Public Utility Commission and the Electric Reliability Council of Texas said Thursday that they will redesign how Texas’ electricity market provides incentives to power generators to produce a more stable flow of electricity to the state’s troubled electric grid.

But, they said, ERCOT will continue to ask Texans to conserve energy at times, especially as the state heads into the hottest part of summer.

In a joint press conference, PUC Chairman Peter Lake and ERCOT’s interim CEO Brad Jones said they don’t yet know how the redesigned market will work, but that it will move away from the current crisis model that pays generators much more when grid conditions are tight.

“By no fault of their own, private companies can only generate revenue as Texas gets closer and closer to the edge. That’s not a good way to run a reliable grid,” Lake said. “The market needs and will receive a major overhaul.”

Texas’s current energy market model was created in the 1990s and uses prices alone to encourage power generation, said Oliver Kerr, USA lead for Aurora Energy Research. It built scarcity into the system by design, he said.

“In this market, you need those times when the lights almost go out to incentivize new generation or old generation to stick around,” Kerr said. “Right now, the market is functioning exactly as designed.”

To bolster reliability, ER-COT adds a “bonus” to power prices when the capacity margin — the amount of generation in excess of demand — is getting low. This so-called scarcity pricing means prices for power can soar to as much as $9,000 a megawatt hour in Texas when grid conditions are tight or that they can tumble into negative territory when there's too much power.

Kerr said the PUC or ER-COT could use the scarcity pricing mechanism to raise power prices before grid conditions get as tight as they were during the February freeze and in June, when about15 percent of the grid’s capacity went offline unexpectedly during heat wave. The agencies could also pay generators for their existing capacity to entice them to stay online and to do more maintenance.

A third option could be to move to a capacity market, which pays companies to keep backup generation available, whether or not its brought into service. Lake on Thursday dismissed that method, which requires more regulation, saying it was not discussed or approved by the Texas Legislature during its 2021 session.

While the agency begins tinkering with the power market, Jones said, ERCOT has already lined up more reserve power to help the state get through summer, when demand peaks. This month, ERCOT has bought 4.4 million megawatts of power compared with the 3.2 million it bought in July 2020.

The additional reserves could be tested as soon as next week, when temperatures are forecast to top 100 degrees in some parts of the state.

Jones said the heat will lead to record demand of around 74,000 megawatts. One megawatt is enough to power about 200 homes on a hot summer day. While ER-COT has procured more back-up power generation, both Jones and Lake said conservation notices could be among the tools ERCOT will have to use to keep the lights on.

“Please don't panic,” Lake said. “It’s the opposite of panic — it’s a few things for a few hours here and there. It's no different than changing your lawn watering schedule in a hot summer.”

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