Top Texas regulators identify priorities for ERCOT market redesign
by Kelso King, GridMonitor | Source: Grid Monitor | Posted 09/28/2021
Peter Lake, Chairman, Public Utility Commission of Texas
At the GCPA Fall conference, PUCT Chairman Lake identified his priorities for redesigning the ERCOT market: first, providing a market construct that delivers reliability and accountability in delivering power to households and businesses in Texas. Which he noted is “paramount.” Although we want to do that in the most affordable manner possible within a market construct that utilizes competitive forces to deliver better products and better service at lower cost for the people of Texas. At the same time, we are very focused on making sure that we pay for market outcomes we want and don’t simply assign economics to certain input variables. We don’t want to be picking and choosing a subset of variables at the expense of others. We want to designate the outcomes we want. No one wants or expects government entities to keep up with the rapidly changing technologies in the power industry.
Opportunities will be around, delivering the desired outcomes, reliability and accountability, and the companies that can deliver those will be economically rewarded. From bringing more efficient, more reliable generation but also demand response. Although there are many options being offered, how much demand response is currently happening in the residential side is currently unknown. This is an opportunity for building business models that focus on these opportunities.
There are some current challenges associated with the duration of batteries but also a lot of optimistic development in battery technology. We want to make sure that companies, technologies and business models that deliver power with reliability and accountability, reap the rewards of that, and this is a big opportunity for batteries.
Changes are being made in the way ERCOT has run the grid, taking a much more conservative posture. After the events in February, we got clear direction from the governor and the legislature that we need to stabilize the situation for the summer. This was done primarily through establishing a larger safety margin, procuring more ancillary services, but also by implementing a new methodology for acquiring those resources based on real-time information, as opposed to being set many months in advance.
Second, we are being more conservative in calling backup units, Reliability Unit Commitment (RUC). ERCOT had previously waited to the last minute, to avoid out-of-market actions, with undesirable effects. However, to stabilize the grid to operate with an abundance of caution, ERCOT is “RUC’ing” units sooner rather than later.
These are very short-term measures that were never intended to be permanent but are in place to stabilize the grid for the summer and make sure it is safe, secure and stable as we go through the market redesign period, which will address many of these issues. We have been in a crisis-based business model as a primary source of revenue.
We can’t claim any wins until we get through the summer and the market redesign successfully However, we have passed new rules to correct market design issues in ERCOT, including the pricing of ancillary services during scarcity events, which was a tremendous problem during the winter storm. We’ve also clarified how the market will function during scarcity events. A lot of progress has also been made on securitization efforts pursuant to House Bill (HB) 4492.
This week the PUCT issued Phase 1 of rules for a new weatherization standard. The PUCT is working rapidly to get Phase 1 in place, to meet new NERC standards, require generators to address any operational issues that arose during the 2021 winter event, and mitigate specific operational issues. Phase 1 is expected to be implemented by December 2021, while we continue to work on a more robust solution. Going into this winter the Texas generation fleet will be more resilient than it was before and will be operating with a more conservative posture, leading to a more resilient power grid.
The legislature did a tremendous job of addressing the fallout of a staggering crisis on a very short timeline, including power, gas, emergency notification and loadshed criteria. The PUCT and Texas Railroad Commission (TRRC) staff are off to a good start on making necessary changes. The agencies are working in a very cooperative posture to make sure that any roadblocks identified by Staff can be quickly resolved quickly.
I hope that in five years Texans don’t even think about the power grid, that the power is affordable and reliable and not even a topic of conversation. The new market design will move revenues to reliability within a framework that captures competitive market forces to deliver innovative products and technologies to customers and companies have the economic incentives they need to build more generation and bring more technology, with more precise and flexible demand response to the power grid.
The Chairman concluded by expressing appreciation for the great work by PUCT staff and stakeholder groups during this extraordinary time, noting that “this is too big a task for any single entity and will require contributions from stakeholders across the industry and across the state.”
Brad Jones, ERCOT Interim CEO
Interim ERCOT CEO, Brad Jones noted that he was asked to stabilize ERCOT and restore trust in ERCOT. He noted that ERCOT has been the premier retail and wholesale market in the entire world. He discussed an acronym to describe the grid’s paradigm, RACE: Reliable Affordable Clean Energy, and he recommended a need to increase the focus on reliable.
Mr. Jones noted that he spoke with regulators, academicians, regulators and consumers to develop a list of initiatives to improve reliability of the grid, which led to a list of 60 initiatives referred to as ERCOT’s “Roadmap to Reliability.” He noted that the Legislature provided tools to improve the reliability of the grid, focusing on gas supply, critical infrastructure, weatherization and communications, and the PUCT is moving forward on these with ERCOT’s support.
ERCOT is operating the grid more aggressively and more reliably than in the past, bringing more generation on over peak than ever before, more or ancillary services when needed and calling on more non-spinning reserves for support during uncertain weather conditions. He noted that a potential two-hour difference in the timing of a weather front could have resulted in a 6,000 MW difference between the forecast for load and wind generation so ERCOT deployed additional reserves to ensure reliability. Although ERCOT procured the additional reserves, its forecast turned out to have been correct.
Mr. Jones noted that improving transmission to the Lower Rio Grande Valley has long been an issue, it’s hard to keep up with the load growth in that area and build fast enough. He suggested that we are not in danger but not operating at the level of reliability we would like to have. This has been taken up by the PUCT, which will be holding a work session on Thursday, September 23 to discuss those issues.
Mr. Jones noted there has been tremendous expansion of ERCOT's solar fleet and the introduction of new renewable resources into the ERCOT grid. At the beginning of summer 2021, there were 3,000 to 4,000 MW of solar but that increased to up to 8,000 MW by the end of the summer. ERCOT expects 12,000 MW by next summer, with 20,000 megawatts by the end of next year that and 30,000 megawatts the year after that. This leads to a need for resources that increase as the sun sets in the evening and is something that needs to be studied further.
ERCOT is working in coordination with the PUCT on other items on its roadmap, including firm fuel requirements, weatherization and identification of critical facilities. ERCOT is working on the initiatives from the governor to rebuild trust with the public through its communications and operations.
QUESTIONS
How is ERCOT addressing energy infrastructure, gas, solar and wind, to prevent winter and summer blackouts?
The PUCT has been working on a weatherization rulemaking and ERCOT is working with them to provide information. Phase 1 will require generators to upgrade to the NERC requirements resulting from the 2011 extreme weather event, with new requirements for wind and solar generation. ERCOT will be hiring a director of weatherization and contracting with individuals to assist ERCOT in doing weatherization inspections beginning in December 2021 and they are hoping to cover 85% of the MWh that were out through inspections during the December timeframe. Meanwhile, the Railroad Commission is working on weatherization rules for the natural gas industry and, with the PUCT and ERCOT, identifying critical natural gas assets that supply the gas-fired electric generation fleet.
Resource adequacy methods have not changed much despite a rapidly changing resource mix. How will this change reliability planning and resource adequacy methods to reflect the increased role of wind, solar, storage and load flexibility?
First, ERCOT is operating in a more reliable manner, bringing more generation on to have it available should there be significant change in loader generation. The PUCT is also looking at various changes, many recommended by market participants suggestions, including changes to the pricing curve, the ORDC, additional ancillary services, including on-site fuel supply, and ramping products.
Can you provide any insight on the new Board of Directors?
Don’t know who they are yet but two individuals have been mentioned as potential Board members, both of which I’d be thrilled to have on the Board, very knowledgeable and good to work with, I’m very encouraged just by hearing those names so far and look forward to restoring the trust and respect for ERCOT.
What are some of the changes to ERCOT’s approach to communicating with the public?
I am planning to meet with local representatives and have dialogue with people and communities across the state. I will be trying to speech in a much more clear manner, removing all jargon from speeches. I don’t believe ERCOT should have a strong social media presence. Engagement with individual end-use customers is not the province of ERCOT, but rather of REPs, distribution utilities, munis and co-ops.
What kind of software and data enhancements are needed by ERCOT to enable more distributed assets to a play major role in reinforcing the grid by providing grid services?
ERCOT sees DGR as a significant contributor to future grid reliability. ERCOT has urged the team to move forward on DGR very quickly such that, by the end of the year, they can release the moratorium on DGR as it begins to interconnect with the larger grid and participate in the ERCOT market. This is the beginning of the race and there will be much more development than ever in the past.
With the significant increase in Cryptocurrency mining facilities in Texas, what does ERCOT considering regarding possible changes to such loads?
Mr. Jones replied that no changes are planned and he is looking forward to these facilities. He noted that he recently visited a 300 MW facility in Rockdale, Texas, currently the largest in Texas, possibly in the U.S. He explained that cryptocurrency facilities will allows ERCOT to use inexpensive, excess renewables or relieve constraints behind an interface, bringing up the valleys of load while not increasing the peaks much at all. Great for keeping the prices low.
How do NERC’s weatherization standards compare to the new standards being developed in Texas?
The recent NERC standards are a good starting place but I believe they need to be added to to be “uniquely Texas.” This is being done by the PUCT as they move into Phase 2 of their weatherization rulemaking.
How is ERCOT accounting for climate change compared to historical weather data?
ERCOT is using the Texas State climatologist who is creating various scenarios for what extreme weather might look like in Texas. This is being taken into account as we study the weatherization rules going forward.
Without paying capacity fees to allow gas-fired generators to purchase firm pipeline capacity and firm gas supplies, how does ERCOT assure against freeze ups at or near the wellhead or gas transport interruptions?
To ensure supply to gas-fired generators, ERCOT will be doing a critical supply map for everything from the gas generator back to the wellhead. All of that will have to be weatherized pursuant to Railroad Commission rules. In addition, one ancillary service being considered is to require on-site fuel supplies or some type of firm fuel characteristic.
How will ERCOT address future misdirected anger and avoid being distracted by unfair criticism?
Mr. Jones replied that, during the storm was not a time for ERCOT to say “this is not our fault,” there were plenty of places where ERCOT could have improved what it did during the winter storm. Generators could all have improved, TDSPs could’ve improved, gas suppliers could’ve improved. There is plenty of opportunity throughout the entire electric market to have done better. ERCOT is focused on making improvements throughout the market, including changes in its own activities.
Moderator Kim Casey asked how the ERCOT protocols have improved since she and Mr. Jones worked on the first set together.
Mr. Jones noted that they have improved immensely since that time but is proud of the work that they did getting the first set of rules together and is proud to be re-involved with market participants and getting ERCOT stabilized and back on a good footing. He noted that he will be there as long as needed to do that, but only in an interim capacity.
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