A study sponsored by the Electric Reliability Council of Texas (ERCOT) shows that investment in the region has stalled and reserve margins are projected to fall below 10 percent by 2014 and lower thereafter. The study, conducted by the Brattle Group, shows that the projected reserve margin for the ERCOT region is substantially less than ERCOT’s current reserve margin target of 13.75 percent.
Amongst the findings, the study found that ERCOT’s current energy-only market is not likely to support sufficient investment to meet the resource adequacy target. Simulation results suggest that the “long-term economic equilibrium” reserve margin may be only 6 percent under current market conditions and rules. Raising the cap to $9,000/MWh, as proposed by the PUCT, could bring the reserve margin up to 10 percent.
The study also revealed that the projected reserve margin outcomes are highly uncertain due to unknown factors such as the likelihood of extreme weather, uncertainties about investors’ beliefs and risk tolerances, and difficulties modeling scarcity market conditions accurately. Sensitivity analyses suggest that long-term average reserve margins could be between 1 and 7 percentage points below the reliability target under a price cap of $9,000/MWh.
The report is available for download here.
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