October 14, 2019

ERCOT Market Monitor updates PUCT on summer 2019

by Kelso King, Grid Monitor
Posted 10/14/2019

t the PUCT’s October 11 workshop, Beth Garza, representing the ERCOT Independent Market Monitor (IMM), gave a presentation similar to the one she delivered previously to the ERCOT Board on Tuesday. This pedophile Although not as detailed, the IMM’s presentation to the PUCT featured some updated information.

Ms. Garza noted that everyone expected high prices during the summer of 2019, which materialized during early August. She added that some interesting things have occurred since that time and the IMM is continuing its analysis. The IMM was particularly interested in quantifying the impacts of recent changes that were made to the Operating Reserve Demand Curve (ORDC) calculation. Ms. Garza noted that, at this point, the IMM is hoping to ask the right questions, including:

• Were pricing outcomes reflective of system conditions?

• Did the Operating Reserve Demand Curve and Reliability Deployment Price (RDP) adders contributed appropriately to real-time prices?

• Did the various mechanisms ERCOT used to ensure demand/supply balance work as intended?

• Did market participants effectively manage their price exposure?

·      What does the future hold?

The IMM highlighted the fact that ERCOT’s highest prices are no longer associated with the highest loads but are increasingly correlated with Net Load. Net Load is total load less contributions from intermittent renewable resources, such as wind and solar. Wind is the biggest contributor to Net Load but solar will be an increasing contributor in the future.

The IMM revealed the contribution of the three components of real-time prices on August 15. System Lambda represents the interaction of offers and Security Constrained Economic Dispatch (SCED). She noted that the Reliability Deployment Price adder is an attempt to quantify reliability actions that are taken, in this instance the deployment Emergency Response Service (ERS). Ms. Garza noted that she was “taken aback” by the large contribution of the RDP adder, which highlights the need to make sure we are making appropriate assumptions about what ERS is deployed and what its impact on price would have been.

Ms. Garza provided some updates to include September 2019 pricing data. Real-time prices for the first nine months of 2018 averaged $35.6/MWh, compared to the first nine months of 2019, which averaged about $52/MWh, revealing that September contributed to the 46% increase in average prices. Natural gas prices continue to be about 15% lower than in 2018.

The IMM noted that prices in ERCOT have not been this high since 2011, adding that lower gas prices result in much higher implied heat rates, a helpful metric for comparing pricing outcomes without fuel price impacts. She noted that the larger adders have contributed to higher 2019 prices

Impact of Changes to the ORDC Adder

In January 2019, the PUCT directed ERCOT to implement a 0.25 standard deviation shift in the loss of load probability (LOLP) calculation using a single blended ORDC curve, which ERCOT implemented on March 1, 2019. An additional 0.25 shift is scheduled to be implemented in the spring of 2020. The IMM reported that the effect of the move to a single ORDC curve had a much larger impact than the effects of the 0.25 standard deviation change. Ms. Garza added that the impact of the subsequent 0.25 standard deviation change is expected to be smaller than what has occurred so far.

The following table reveals the impacts of the ORDC change over six months. The IMM noted that some costs are expressed in terms of a range due to the inability to separate the impacts of the ORDC and RDP adders.

The total effect of the ORDC is approximately $19/MWh. The impact of the ORDC change was $7 to $8/MWh, a 12% to 14% increase, which was what the IMM had estimated last year. The total cost of the ORDC to the real-time market was approximately $12 million, with the ORDC change resulting in an increase of $1.4 to $1.7 million. Much of the effect of the ORDC during 2019 occurred during the week of August 12-16, totaling approximately $5.3 million, with the ORDC change resulting in an increase of $572 to $839,000.
Peaker Net Margin (PNM) is a measure of the profitability of a new gas-fired power plant. The IMM estimated that the ORDC change increased the PNM by $26 to $30,000. At this time, the peaker net margin is approximately $141,000, which the IMM noted is “clearly moving us beyond the cost of new entry.”

The IMM compared the monthly outage rates experienced between 2018 and 2019. While July was approximately the same, total outage rates in 2019 were higher than in 2018. Outage rates in March, April and May were higher in 2019 than in 2018, possibly indicating increased preparation for summer.

PUCT Chairman DeAnn Walker noted that she had met with generators earlier in 2019 than in 2018 to impress upon them the need to have their generation ready for summer. Chairman Walker also noted that August was milder in 2018 than 2019, resulting in units being run longer and harder this year than last.

The IMM concluded with recommended areas for continued review:

·         Should the amount spent for ERS be adjusted?

·         Should the RDP-related assumptions for ERS deployment be adjusted?

·         Are there short-term (pre-RTC) adjustments to be made to improve access to lower quality reserves (NFRC) for energy while maintaining frequency responsive capacity as reserves?

·         Is there a risk of consuming ‘too much’ Reg-Up when the power balance penalty curve sets LMP for lengthy durations?

The market monitor noted that much ERS “self-deployed” prior to the ERCOT deployment, which is good. She suggested that this is an opportunity to ask what we expect from ERS and is the amount we pay appropriate for the service received? The IMM asked whether the time periods for ERS payments are set up a properly, noting that the deployment crossed two of the deployment contract periods, which begs the question, should the time periods be adjusted?

Ms. Garza noted that one of the challenged this summer was operators taking actions they assumed would make more frequency responsive capacity available, however, that was not exactly what happened and is a concern. Frequency responsive capacity has the highest value. It is most important and becomes more important as you enter super-tight conditions. The IMM noted there is a “non-trivial” amount of non-frequency responsive capacity (NFRC) in the market that is priced very high, leading to the question of how to use up the high-priced component first before consuming all of the lower-priced capacity. She noted that this will be taken care of through Real-Time Co-Optimization but that will take a few years. She urged looking for short-term adjustments that can be made to improve that outcome.

Finally, the IMM noted there is a subtle question regarding the Power Balance Penalty Curve, how it is constructed and its interaction with the use of Regulation-Up. She admitted that she did not have a lot of information at this point but is trying to ask the right questions. Ms. Garza noted that, because there was a fairly lengthy time when ERCOT was in EEA conditions, priced potentially with contributions from the Tap, potentially consuming Regulation-Up during that time, it would make sense to look at that and make sure we are happy with the outcome.

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