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Report: Marginal Losses In ERCOT Results In Only $8.6 Million In Production Cost Savings (0.13%), Would Reduce Generator Net Revenues By 7.54%

Vistra, Renewable Developers Say Marginal Losses Would Add "Significant New Challenge" To Financial Viability Of Generation In North, West Texas

October 13, 2017

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Copyright 2010-17 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

A study performed by the Brattle Group, sponsored by First Solar Inc., Vistra Energy Corp., and the Wind Coalition, says that implementing marginal losses in ERCOT would result in only 0.13% in production cost savings, while reducing generator net revenues

Vistra and the renewable developers ("commenters") said that, while a paper submitted by NRG and Calpine referenced an expected $100 million in annual savings in PJM from marginal loss implementation, "what the Brattle Group’s modeling shows is only $8.6 million in production cost savings could be realized in ERCOT – a savings of only 0.13%."

"The Brattle Group’s modeling also shows that that savings would come in the form of a $239 million reduction in generator net revenues, which, in the Commenters view, would introduce a significant new challenge to the financial viability of existing generation in West and North Texas," Vistra and the renewable developers said

"Moreover, the modeling shows that the absolute reduction of generation is twice as much as the production cost savings, because adding a marginal loss component would cause less efficient thermal generation in and around Houston to generate in place of more efficient generation that is sited further from the center of load," Vistra and the renewable developers said

"In short, given the magnitude of disruption to certain generators when compared to the very small production cost savings, Commenters are convinced that the implementation of a marginal loss component would not be beneficial in ERCOT, and plan to elaborate further on the associated policy issues in subsequent comments," Vistra and the renewable developers said

The Brattle study found that implementing marginal losses would:

• Reduce system production cost by 0.13% per year ($8.6 million out of $6,784 million).

• Reduce system-wide load inclusive of losses by 0.27% per year (1.06 TWh out of 402 TWh).

• Decrease generator net revenues by 7.54% per year ($239 million out of $3,166 million before potential allocation of over-collected ML payments).

Brattle identified that marginal loss implementation changes would have the following impacts on load LMPs and payments:

• Annual average LMP (ERCOT-wide) increases by 2.06% ($0.50/MWh increase from $24.33/MWh).

• LMP payments by load decrease by $38 million (before potential allocation of over-collected ML payments).

• Lower LMP payments in North ($52 million) and West ($47 million) load zones.

• Higher LMP payments in Houston ($53 million) and South ($8 million) load zones.

Brattle further said:

• Over-collection of marginal loss payments would be $205 million—allocation of these revenues would be subject to a separate policy decision.

• Generation resources closer to the center of load would be dispatched more than remote resources.

• Increased dispatch of higher cost generation resources near center of load offsets the production cost savings coming from the reduction in losses.

• Generation in Coast, South, and South Central zones increases by 14.2 TWh, offset by a decrease of 15.3 TWh in other weather zones.

See Brattle's study here

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