Brattle economists addresses ERCOT resource concerns, provides recommendations

Cambridge, Mass., June 1, 2012 – Consultants at The Brattle Group have released a report analyzing resource adequacy concerns and identifying options for better aligning market design and reliability objectives in the Electric Reliability Council of Texas (ERCOT) electricity market.
To inform ERCOT and the Public Utility Commission of Texas' (PUCT) ongoing efforts to maintain resource adequacy, the study characterizes the factors influencing generation investment decisions, evaluates the market outlook for supporting investment and resource adequacy at the target level and lays out options to enhance long-term resource adequacy while maintaining market efficiency in ERCOT.
The authors suggest that ERCOT and the PUCT first evaluate whether the current target is higher than necessary, given the much greater incidence of distribution-level outages and the ability to avoid shedding certain critical loads. They point to other regions' different reliability criteria and recommend establishing the target based on an analysis of marginal benefits and costs. They also recommend defining lower "minimum acceptable" reliability level before any out-of-market backstop measures would be considered.
They also recommend market design enhancements to better enable demand-side resources to participate in efficient price formation, as well as other measures to achieve efficient pricing during both scarcity and non-scarcity conditions. They recommend increasing the offer cap to $9,000/MWh or a similar level corresponding to the value of lost load when shedding load, though scarcity prices should start at a much lower level, such as $500/MWh, when first depleting responsive reserves. Scarcity prices would increase gradually as the severity of the event worsens, reaching $9,000 only when actually shedding load.

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