Final Report Estimates ERCOT Market Equilibrium Reserve Margin As 12.25%; Higher Than 11% Economically Optimal Level

January 15, 2021

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Copyright 2010-21 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

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A final report prepared by a consultant for ERCOT estimates a market equilibrium reserve margin (MERM) of 12.25% under projected 2024 market conditions

"We estimate a market equilibrium reserve margin of 12.25% under projected 2024 market conditions ... This is higher than our MERM projection of 10.25% in our 2018 study, however, the projections of system reliability are nearly identical at 0.5 Loss of Load Expectation (LOLE)," the study says

The report estimates 11.00% as the economically optimal reserve margin (EORM), based on the risk-neutral, probability-weighted-average cost of 80,000 simulations. "However, the estimated societal costs are relatively flat with respect to reserve margin near the minimum, with only modest variation between reserve margins of 10.00% and 12.00%," the report said

"In terms of reliability, our probabilistic simulations indicate that under base case assumptions with a market equilibrium reserve margin of 12.25%, the system is expected to experience 0.5 days per year Loss of Load Expection [sic] (LOLE) ... It is also important to note that this LOLE is the same value reported in the 2018 study at the MERM of 10.25%. Intuitively, the higher MERM in this study would supply higher reliability. However, the higher Equivalent Forced Outage Rate (EFOR) assumptions, combined with a discrepancy between the renewable credit (or reliability contribution) estimated for CDR reserve margin reporting and the actual reliability value provided by these resources, increase the MERM without an improvement to reliability," the study says

The report also studied the values on various scenarios, such as different load forecasts and a "high renewables" case

See the final report here

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