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Calpine, NRG post report that seeks changes in ERCOT pricing, settlement rules

Houston — Calpine and NRG Energy filed Wednesday a commissioned report with the Texas Public Utility Commission that recommends changes to the Electric Reliability Council of Texas' pricing and settlement rules.

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The commissioned report, titled "Priorities for the Evolution of an Energy-Only Electricity Market Design in ERCOT," was prepared by William Hogan of Harvard and Susan Pope of FTI Consulting.

Calpine and NRG, which are both big power generators in Texas, said they requested the report in the hopes of drawing attention to the difficulties the two are facing with subsidized renewables.

Texas has seen its wind generation reach roughly 21,000 MW of installed capacity, roughly one-fourth of the state's total generating capacity of about 84,000 MW.



In 2011 wind generators in ERCOT produced 27,894 GWh. In 2016 that output increased to 53,116 GWh.

The report notes that there has been a "noticeable decline in energy prices since 2014," with the decline in natural gas prices accounting for "a substantial amount of the reduction."

However, the authors say in the report that "subsidized wind had a meaningful impact for the first time in 2016."

"Issues impacting the energy-only markets are the result of federal or state-level statutes or regulations, such as production or investment tax credits for wind and solar producers," the report says.

The authors note that Texas has several state-level programs to encourage the development of renewable generation, "but their impact is dwarfed by the incentives of the federal PTC and ITC."

The relatively high frequency of negative prices in ERCOT was initially observed in the western part of ERCOT, but began to spread after the Competitive Renewable Energy Zones transmission project reached completion.

The report argues that as as installed capacity of wind generation continued to grow, system dispatch at negative prices "increasingly impacted prices at the Houston, Southern and Northern hubs, as power from wind is setting the prices more frequently outside the West zone."

The processes for transmission planning and cost allocation impact the energy-only market, but are not part of the energy-only market design, the report notes, but rather lie within the jurisdiction of the Texas PUC.

The authors said there is an "urgent need" to consider alternatives to socialized transmission planning and cost recovery in order to avoid unintended "subversion" of ERCOT's market-driven model for generation investment.

It said that market-reflective policies for transmission investment should be considered as a replacement for socialized transmission planning, which, by building new transmission in advance of scarcity developing, "fails to provide the opportunity for markets to respond."

The report also focuses attention on the Operating Reserve Demand Curve, which ERCOT implemented in June 2014 to help it with reliability and with scarcity pricing.

Power suppliers in ERCOT receive direct compensation only for providing operating reserves and energy during short-term periods of scarcity through ORDC.

The authors said their paper addresses possible changes in the ORDC, as well as "other opportunities" to improve price formation in ERCOT's wholesale market design, as a signal of the underlying cost of maintaining reliability.

--Jeffrey Ryser, jeffrey.ryser@spglobal

--Edited by Jason Lindquist, jason.lindquist@spglobal.com