Nelson Favors Closer Look At Capacity Market In ERCOT
August 12, 2013
Donna Nelson, chair of the Public Utility Commission of Texas, came out in favor of a deeper look at a capacity market for ERCOT. In a memo posted Friday, she said the current energy-only market design will produce a reserve margin equilibrium of around 8 percent to 10 percent with the changes the PUCT has made already. She added it will not be steady at that level; those figures would only be the average of the boom-and-bust cycles of generation, because investors will only get the needed money when the margin is on the low end of that range and scarcity pricing becomes common. A forward capacity market would let ERCOT market participants buy the capacity needed to keep the reserve margin at the desired level. ERCOT's current 13.75 percent target is meant to keep the current one-in-every-10-years-loss-of-load-event standard that is commonplace in the electric industry. But a recent analysis indicated it could need to be a couple percentage points above that to maintain the standard, Nelson said, explaining that getting away from the needed reserve margin means rolling outages would happen more and more often. At a 10.2 percent reserve margin, 1.542 rolling outages would be expected each year – which is 12.7 times more than with a 15.6 percent reserve margin. At a 7.5 percent reserve margin, 5.066 outages would be expected annually, and that would be 41.9 times the level of a 15.6 percent reserve margin. It has been estimated that outages cost the national economy $79 billion annually. If rolling outages become the norm in Texas, Nelson said, those costs will start to mount and businesses might avoid locating in the state.