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Group Of Independent Texas Retail Providers & Shell Join Large Customers, Brokers, And NOIEs In Proposing New Ancillary Service To Address ERCOT Reliability, Instead Of PCM

December 14, 2022

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Copyright 2010-21
Reporting by Paul Ring •

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A group of independent Texas retail electric providers are among the members of the Coalition for Dispatchable Reliability Reserve Service, a group that is proposing a Dispatchable Reliability Reserve Service (DRRS) (built on the Uncertainty Product advocated by the ERCOT IMM) as the best mechanism to ensure the supply of reliable and affordable electricity to support continued economic growth in the Lone Star State.

The Coalition for Dispatchable Reliability Reserve Service also includes includes various large customers, brokers, renewable energy companies, and municipal utilities and cooperatives --

REP members of the Coalition include Shell Energy Solutions, Just Energy Texas, AP Gas and Electric (TX), Demand Control 2, OhmConnect Texas, Good Charlie & Co., Tomorrow Energy Corp., Southern Federal Power, and IGS Energy

Other notable Coalition members include the Texas Energy Professional Association [sic], Texas Industrial Electric Consumers, ERCOT Innovation Caucus, Texas Solar Power Association, Solar Energy Industries Association, Denton Municipal Electric Utility, and Rayburn Electric Cooperative, among several other groups, renewable energy and storage providers, large customers, and NOIEs

"DRRS is an Ancillary Service, procured in day-ahead and provided by resources that can be available in real-time and dispatched within 2 hours of deployment, and which can continue to provide the service for 4 hours, to ensure additional dispatchable generation availability in real time to cover for the uncertainty around renewable generation variability, load variability and unforeseen thermal forced outages," the Coalition said

"The DRRS product satisfies SB3 by (1) establishing requirements to meet the reliability needs of the power region, (2) procuring Ancillary Services to ensure appropriate reliability during times of low nondispatchable power production, (3) at least annually, determining the quantity and characteristics of the service needed, (4) procuring the services on a competitive basis, (5) establishing the product's qualification and performance requirements, and (6) sizing it to address reliability concerns due to net load variability for each season - all while utilizing the transparent, liquid and market-based framework that already exists with respect to the Ancillary Services that ERCOT uses today," the Coalition said

"A targeted procurement of needed DRRS product ... efficiently creates the needed price signal to spur appropriate response in real time. Therefore, a new competitive and technology-agnostic Ancillary Service market product should be adopted to procure the necessary reserves to address the reliability concern economically and effectively, as well as to provide new resource investment signals in line with the grid' s need for flexible dispatchable resources in real-time," the Coalition said

"As with all other Ancillary Services, ERCOT would develop a well-defined qualification process and strict non-performance penalties for the DRRS product, which will guarantee the necessary real-time availability and performance. All resources that can meet the required performance attributes should be allowed to provide the service, including new resource types such as DERs," the Coalition said

"Centralized and co-optimized clearing of Ancillary Services and energy in the Day-Ahead Market ensures a competitive and economic pricing outcome which is consistent with the grid' s day-to-day needs. The methodology for calculating the grid needs for the DRR S product would be established ahead of time, similar to the manner in which ERCOT establishes the grid needs for other Ancillary Services. Currently, all Ancillary Service amounts are set for the future year through adoption of a methodology that goes through multiple stakeholder processes and is ultimately adopted by the ERCOT Board of Directors and the Commission. ERCOT would publish specific procurement amounts on a year-ahead basis and determine seasonal/monthly/time block level grid needs, which could be increased day-ahead based on anticipation of need for more reserves not covered by the existing procurement. ERCOT would analyze the expected needs for the evolving grid and publish any necessary tweaks to the product and estimated procurement amounts for future years. Together with a policy commitment to the approach, this process would provide market certainty, a revenue stream, and new investment incentive for the types of flexible dispatchable resources capable of efficiently resolving system reliability issues, as the investment in more variable resources and new sources of demand grow and change," the Coalition said

"LSEs will have responsibility to self-arrange or procure from the Day-Ahead Market their obligation for the DRRS product. Cost of procuring the service would be assigned to LSEs through ERCOT on a load ratio share basis, subject to ERCOT modifying the cost allocation of Ancillary Services for the region consistent with cost-causation principles and on a nondiscriminatory basis," the Coalition said

The Coalition said that, "This product would resolve the issues that ERCOT is currently addressing with out of market resource commitments (RUCs) and added duration requirements for ERCOT Contingency Reserve Service ('ECRS') and Non-Spinning Reserve Service ('NSRS'). The longer deployment duration of the DRRS product would provide a period of reserve certainty and will therefore enable ERCOT to reevaluate the duration requirements for ECRS and NSRS."

"Moreover, the DRRS product would complement other measures already being evaluated by the Commission such as Real-Time Co-Optimization of Energy and Ancillary Services ('RTC'), increasing residential and commercial Demand Response, increasing Energy Efficiency, allowing participation of Aggregate Distributed Energy Resources ('ADER'), and other measures to help improve operational flexibility," the Coalition said

The Coalition said that various proposed "Capacity Market" constructs, including the PCM, "would significantly damage the Texas retail market competition, reduce options for customer choice, and result in a loss of the downward pressure on price created by that competitive retail market."

See more background on the PCM here

"The increase in cost to consumers is especially high for the PCM because of the significant amount of risk that Retail Electric Providers ('REPs') and other Load Serving Entities ('LSEs') would have to incorporate in their fixed priced contracts. This is because REPs/LSEs would have to accommodate the PCM settlement being out of sync with customer billing periods, the inability to predict the low reserve hours / the MW quantity to be cleared/ the clearing price, and the likelihood of a limited forward market because of these features," the Coalition said

"Ancillary Service quantities are generally determined prior to the operating year whereas PCM is a variable quantity dependent on a multitude of unpredictable real-time conditions and are not known until the end of the compliance period, adding significant complexity to hedging," the Coalition said

"Capacity procurements do not inherently guarantee real-time operational availability in the way that an Ancillary Service product does, as there is no definite reserve amount that ERCOT can call upon in the cases where ERCOT and market forecasts diverge, and resources do not self-commit to a degree that meets ERCOT's reliability needs. Hence, ERCOT would have to continue to rely on out-of-market resource commitment (RUCs) to get this capacity online in real time. Moreover, there is no specific operational characteristics requirement from the capacity procured through the proposed Capacity Market constructs; therefore, there will be no real-time performance guarantee during any rapidly developing system reliability events unless the resource already happens to be online and available when the event occurs," the Coalition said

The Coalition said the DRRS product will provide an incremental revenue stream to incent new generation builds and to help support existing generation, but also proposed that, to assuage any concerns with potential unexpected and extensive traditional generation retirements occurring more quickly than new thermal generation investment incentivized is installed based on market signals, "ERCOT's Reliability Must Run (RMR) mechanism could be modified to address timing issues relating to retirements while allowing for and preserving the market signals needed to attract new investments."

"ERCOT's RMR mechanism currently provides a mechanism to retain retiring capacity on a 'cost plus' basis. This mechanism could be modified to address timing issues relating to the retirements while maintaining grid reliability, without adversely impacting the market signals needed to attract new investments. This preserves such units that cannot economically operate during normal days for use only during an emergency, which serves an important reliability function. However, such a mechanism would be used temporarily to smooth out any retirements slated to occur prior to market investment in new generation being made. This is a viable and more cost-effective solution to alleviate concerns associated with potential retirement of traditional generation units while giving the market time to respond," the Coalition said

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