Texas power market faces ‘chaos’ of massive load interconnection queues, market changes, new rules: experts

The Electric Reliability Council of Texas faces a daunting "chaos" of interconnecting gigawatts of large loads -- mostly data centers -- into a grid undergoing significant change wrought by legislation and regulatory mandates, experts said Aug. 26 at a conference in Austin, Texas.

"We now are at about 188 GW in the large load interconnection queue, up 70% since March of this year," said Casey Bell, partner in the Trautman Pepper Locke law firm, a partner in the Troutman Pepper Locke firm during Infocast's Texas Clean Energy Summit at the Hilton Austin.

As context, ERCOT's current official record peakload is 85.5 GW set in August 2023.

"Of those 188 GW, 82 GW currently have interconnection studies under review," Bell, the conference's executive briefing chairman, said during his introductory remarks. "Another 22 GW have studies approved or have actually been approved to energize. 7 GW of large load are connected, up 30% on the year. 14 GW of large load are in advanced planning, which is up 60%. So, the big question is, how are we going to interconnect all of those large loads safely, reliably and expeditiously?"

'To harness the momentum'

Alex Shattuck, director of grid transformation at Energy Systems Integration Group, said that as ERCOT does "have chaos, and people have been talking about it," it can push grid operators toward improvement.

"Those in the regulatory space at ERCOT do a great job to harness the momentum, because the conversations we're having are giving the momentum to actually get improvements and enhancements to regulatory procedures done," said Shattuck, a panelist in a discussion about Texas' future transmission and generation needs. "Simply put, if it's not mandatory and enforceable, it's probably not going to happen, right?"

For example, the recently enacted Senate Bill 6 addresses several aspects of the state's electricity market, including setting rules for large loads co-located with existing generation, setting criteria for large loads in planning forecast, standardizing large load interconnection processes, establishing a competitive reliability service to allow large loads to provide demand response.

But Ned Bonskowski, vice president for Texas regulatory policy at Vistra, Texas' largest independent power producer, said Senate Bill 6 did not happen "in a vacuum."

"There's a long continuum of statutory regulatory policies that has to fit inside of," Bonskowski said during a panel discussion about Senate Bill 6. "I think that about 75% to 85% of [Senate Bill 6] was already happening or was going to happen anyway. So, it's really a codifying statute, putting some guardrails on how they want it to be implemented. And then I think the challenge for the rest of us is how do we use all of the tools, all the policies that we spent a lot of time over the last few years developing in the ERCOT stakeholder process so that we're not reinventing the wheel."

Co-optimization likely bearish

One big market change that has been in the works since February 2019 is the implementation of real-time co-optimization of energy and ancillary services, which is now in market trials, with a planned launch date of Dec. 5.

The February 2021 winter storm, known locally as Winter Storm Uri, that caused power outages for more than 4 million customers in the ERCOT market, some for days, prompted a slew of market changes, including a "conservative operation" mandate in June 2021 from the Public Utility Commission of Texas, which has continued. That conservative operation, among other things, requires maintaining a larger operating reserve that varies based on risk estimates.

"I have not heard anybody have a view other than that's going to be negative for pricing," Bonskowski said of real-time co-optimization. "Efficiency is the term that's used, but really we're going to operate the system closer to the edge. That's what it was always designed to do, to feed into your ancillary services at a lower cost to the market. That is the exact opposite of the conservative operation that we've seen since Winter Storm Uri."

Another mandate imposed by the Texas Legislature after the storm was to establish a reliability standard assessment on a regular basis, starting in 2026, Bonskowski said.

"The PUC and ERCOT are going to kick off a reliability standard assessment in 2026," Bonskowski said. "That is a really important, to take stock of the tools that we have and see what's likely to work to meet the objectives, and what's not."

Flexibility key to reliability

Samantha Robertson, global energy strategy director at Bitdeer, a cryptocurrency mining data center developer, said cryptocurrency mines can help markets efficiently meet reliability objectives, but may affect incentivization of new generation in ERCOT.

"As a Bitcoin mining company, we're of the camp that demand flexibility is a very important element of reliability," Robertson said. "Of course, that does most definitely impact forward prices and real-time prices and how generators can be incentivized to come in. I think that what's great about ERCOT is that it's the most liquid power market maybe in the world. There are tools where you can risk whether on the load or the generation side."

ERCOT stakeholders and Texas regulators can and have worked to build "new structures that leverage that flexibility and provide for some of that risk management," Robertson said.

Caitlin Smith, vice president for policy and corporate communications at Jupiter Power, an independent power producer focused on battery energy storage systems, said Senate Bill 6 requires large loads, under certain circumstances, to be curtailed in an emergency, "but if all this load comes off administratively, the price is going to change such that you're not an emergency."

"I think it's sort of the same with the load forecast," Smith said. "If you have this really elevated load forecast, but they are seeing low prices, you're not in the same reality. ... I think probably a lot of shops have their own view, and maybe their own view really is that prices will stay low, and that's where we are."

But Robertson said flexible "loads, whether they're industrial, Bitcoin mining, regular data centers or even residential" are key to maintaining reliability in the future.

"And for that reason, I do think that real-time co-optimization is really exciting to bring a lot of technology and new solutions to the space," Robertson said.