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Americas Energy CEO Series: Bill Magness, ERCOT

Distributed energy resources constitute a "potential game-changer" for the Electric Reliability Council of Texas, President and CEO Bill Magness says, but ERCOT is working to enhance visibility of those resources for operations purposes.

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Magness joined ERCOT as senior vice president and general counsel in September 2010, shortly before ERCOT's nodal launch in December 2010. He became president in December 2015.

While the US Energy Information Administration ranks Texas No. 1 among US states in terms of electricity usage and generation overall, it only ranks No. 8 in terms of distributed, non-utility solar capacity, according to PIRA Energy Group, a unit of S&P Global Platts, but those numbers are growing quickly.

From January 2014 through this September, the latest available state-level data, small-scale solar in Texas has more than quintupled, from 76 MW to more than 433 MW, according to EIA data.

"Distributed energy resources are a potential game-changer, and we are working together with our market participants to ensure ERCOT -- as a grid and market operator -- is ready for what emerges as the market develops," Magness said in an email Thursday. "Our first task is to ensure the resources are sufficiently visible to grid operators. Understanding where generation resources are on the system is fundamental to network modeling; grid operators rely on network models to manage effectively by preparing for a variety of conditions."

ERCOT staff and stakeholders have done "a lot of work" to increase that visibility, and "much remains to be done to meet what is expected [to be] a significant change in coming years," Magness said.

ERCOT's level of engagement with its market participants and stakeholders is considered by Magness to be one of the independent system operator's strengths, but he said they face "changes that could make our business look very different in the future."

"These include growth in distributed energy resources, changes in the generation resource mix, and the potential for electrification of transportation," Magness said.

SHIFTING AWAY FROM COAL, TOWARD WIND

In 2010, ERCOT received 39.5% of its energy from coal, 38.2% from natural gas, 13.1% from nuclear power and 7.8% from wind. Through the first 11 months of 2017, ERCOT has received 32.2% of its energy from coal, 39% from natural gas, 10.6% from nuclear power and 17.5% from wind.

Coal's share of the ERCOT market is likely to diminish further in 2018, as Vistra Energy plans to have retired about 3,000 MW of coal capacity by January 11 and to either sell or retire another 1,200 MW by February 12.

In combination with delayed projects, these retirements contributed to the planning reserve margin for the summer of 2018 falling to 9.3%, well below the current target of 13.75%, designed to ensure the grid has a capacity-related blackout no more often than once in 10 years. The sharp drop in planning reserve margin was reported in ERCOT's latest Capacity, Demand and Reserves Report, released December 18.

"Planning reserve margins fluctuate over time," Magness said in a statement about the CDR. "We see these types of shifts as the ERCOT market experiences cycles of new investments, retirement of aging resources, and growing demand for power."

Regarding electric vehicles, a recent Greentech Media report on a Wood Mackenzie study indicated that if 60,000 electric vehicles tried to charge at once in ERCOT, the load would equate to 70 GW, almost as much as ERCOT's current record peakload, 71.1 GW, set in August 2016.

PIRA Energy has forecast Texas' electric vehicle total to cross the 60,000-vehicle threshold by 2020.

"ERCOT has taken many steps to increase our ability to be flexible in how we perform our grid and market operations duties," Magness said. "Avoiding fragile systems and processes is a key part of developing resilience to ensure we are prepared for threats to the grid and markets. I would not characterize this as a weakness for ERCOT, but it is a broad area of challenge we work on every day."

VEXING TIMES FOR COMPETITIVE POWER MARKETS

In May, the Public Utility Commission of Texas received a report, "Priorities for the Evolution of an Energy-Only Electricity Market Design in ERCOT," by Harvard's William Hogan and FTI Consulting's Susan Pope, that concluded that factors outside Texas regulators' control have been "putting enormous stress on generators," prompting concern about the ERCOT energy-only market's operability and reliability.

The federal government's production tax credit for wind resources and the massive growth in wind capacity over the past few years has had the effect of reducing wholesale power prices so low that "it may affect the operability and reliability of the market," Hogan said at a seminar in October.

"The challenges US competitive power markets face today vary by region, but have some common themes: the dramatic growth of renewable resources, the sustained low prices of natural gas, the emergence of distribution-level resources and demand side efficiencies," Magness said. "We will work with market participants and policymakers to meet these challenges in a way that works for the ERCOT region and market."

The PUC established Project No. 47199, "Project to Assess Price-Formation Rules in ERCOT's Energy-Only Market" to address several of the major issues raised in the Hogan-Pope paper.

"ERCOT is working on analysis requested by the Public Utility Commission of Texas as they consider the proposals," Magness said. "Our analysis will be developed over the next few months as we have described in filings at the PUC."

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