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ERCOT market design evaluation

The Texas Association of Manufacturers, the Texas Oil & Gas Association, the Texas Chemical Council, and the Texas Industrial Energy Consumers engaged Bates White to evaluate proposed modifications to the ERCOT electricity market that are intended to support reliability of the system. The proposals are a response to the blackouts stemming from the February 2021 storms in Texas and seek to create new market mechanisms to compensate generating capacity. Collin Cain and Spencer Yang reviewed ERCOT market reform options and performed preliminary analyses of two proposed modifications that would support system reliability while also retaining the essential features of the energy-only construct: (1) a dispatchable reliability reserve service (DRRS), a new ancillary reliability service similar to the uncertainty product recommended by ERCOT’s Independent Market Monitor; and (2) a direct procurement mechanism that could be implemented if a shortfall of dispatchable resources is identified in the future.

Mr. Cain and Dr. Yang concluded that implementing a DRRS would help to manage operational uncertainty and would enhance the revenues available to dispatchable resources—incentivizing continued generation investment to meet ERCOT’s reliability needs as substantial quantities of new renewable generation enter the market.  DRRS could meet these needs at a fraction of the cost of proposed capacity mandates that would entail increased costs to retail customers of $5.7 billion or more annually. 

Their report was cited in the March 2, 2023, issue of Utility Dive.

More information and the full report are available here.

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