Energy Choice
                            

Matters

ERCOT IMM: Preliminary Data Suggests Summer Pricing Reflected Specific Conditions, Not "Flaw" In Scarcity Pricing

September 17, 2018

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

The following story is brought free of charge to readers by EC Infosystems, the exclusive EDI provider of EnergyChoiceMatters.com

In comments to the Texas PUC concerning summer ERCOT market outcomes, Potomac Economics, the Independent Market Monitor (IMM) for ERCOT, said that, "Early indications of market outcomes through August are that net revenues provided by the ERCOT real-time market in 2018 will not be at a level sufficient to support new natural-gas fueled generation. Based on the preliminary and incomplete data reviewed to date, it appears that market outcomes so far during 2018 have been reflective of the specific conditions experienced rather than any flaw with the scarcity pricing mechanism."

"The load weighted, average real-time price in 2018, through August, was approximately $36/MWh. Although this may seem relatively modest, it is roughly 25% greater than the same period last year. Because natural gas prices have remained relatively stable since 2017 at roughly $3/MBtu [sic], the increase in real-time energy price in 2018 has likely increased net margins received by generators. These are expected results given the lower amount of installed reserves in 2018," the IMM said in its comments

"One of the key drivers of relatively modest real-time prices this summer was higher than expected generation availability. ERCOT's energy-only market design is intended to produce very high energy prices (including the ORDC adder) during times of supply scarcity, i.e., when available capacity is insufficient to meet both total demand for electricity and required operating reserves. This structure creates a very strong incentive for generators to be available at the times when they are expected to be needed most," the IMM said in its comments

"The benefits from the incentives for generator availability in ERCOT's energy-only market design are somewhat thwarted by the lack of a priced-based mechanism to determine when to convert reserve capacity into energy in real-time. In an energy-only market that depends on scarcity pricing signals to provide incentive for proper levels of investment, it is imperative the scarcity pricing reflects actual scarcity rather than the inefficient assignment of reserve capacity. Real-Time Co-optimization will improve the accuracy of the shortage pricing mechanism," the IMM said in its comments

"In reviewing market outcomes during the summer of 2018 through August ... it became clear that a Resource with a DAM award that subsequently receives a RUC instruction is not receiving appropriate price signals. Such Resources are now incentivized to respond to the RUC instruction by going ONRUC rather that ONOPTOUT, because their decisions will likely increase the value of the ORDC adder. This situation occurred in one of the sixteen RUC events during the summer of 2018," the IMM said in its comments

"To further refine the Commission's directive to remove RUC capacity from the determination of the ORDC adder, the IMM recommends that capacity for ONRUC Resources settled under DAM make-whole treatment should not be removed from the determination of the ORDC adder," the IMM said in its comments

"In conclusion, the IMM's review of 2018 ERCOT market outcomes is, at this time, ongoing and incomplete. We will bring additional insights forward as appropriate," the IMM said in its comments

ADVERTISEMENT
NEW Jobs on RetailEnergyJobs.com:
• NEW! -- Supply Analyst -- Retail Supplier
• NEW! -- Controller -- Retail Supplier -- Houston
• NEW! -- Outside Sales Executive -- Retail Energy
• NEW! -- Channel Sales Manager -- Retail Supplier
• NEW! -- Sr Analyst, Supply and Pricing -- Retail Supplier -- Houston
• NEW! -- Customer Retention Analyst -- Retail Supplier -- Houston
• NEW! -- Energy Market Analyst - Pricing & Trading
• NEW! -- Manager, Power Supply -- Retail Supplier
• NEW! -- Renewable Energy Sales Representative -- Retail Supplier