We might have enough power in Texas this summer, but rates might be going up to pay for the extra capacity

There's no such thing as a free lunch.

See By Shelby Webb of The Houston Chronicle. Excerpts: 

"Unilateral changes made by the Public Utility Commission and state’s grid manager have fundamentally altered how the state’s power market functions, potentially costing Texans an estimated $1 billion since July 2021 and as much as $2 billion by the end of the year.

After two decades of relying on market mechanisms, namely prices, to bring power on and off the grid, the PUC and the Electric Reliability Council of Texas are instead ordering generators to keep plants running — even when the electricity isn’t needed — to ensure a comfortable supply cushion. In addition to adding costs for consumers, power generators say they’re losing money and damaging aging equipment to meet the new requirements, signaling they may mothball some plants, or shut them down for good, due to wear and tear.

The changes put in place by the PUC and ERCOT have distorted the market, undermined pricing and created uncertainty, analysts said, making it unlikely investors would pour millions of dollars into building and expanding generation while it remains unclear how the power market operates and how it may change in the next year."

"Since laws deregulating the power market passed in 1999, Texas’ market has depended solely on price signals to attract the electricity the state needs. The Legislature, in fact, has consistently rejected efforts to create a capacity market, which pays companies to keep idle generation available in case it’s needed, and stuck to the concept that prices alone should balance supply and demand.

In Texas, the vast majority of power, nearly 90 percent, is acquired and priced set through contracts, but two inter-related markets are responsible for responding to short-term supply and demand: the real-time and day-ahead markets. In the real-time market, when the demand for power approaches the amount of power available, wholesale prices spike, providing the incentives for generators to crank up units to sell electricity at healthy profits. When demand falls below available supplies, prices sink, leading generators to take production offline.

The power sold in the real-time market supplements the electricity committed by generators in the day-ahead market. When generators bid into the day-ahead market, they tell ERCOT that they will provide electricity for a certain number of hours at a certain price.

If ERCOT does not receive enough bids or offers to meet projected demand, ERCOT officials can order units to come online and wait in the wings in case they are needed, through a process known as Reliability Unit Commitments, or RUCs.

 
Historically, forcing units to come online for reliability’s sake happened rarely as ERCOT adhered to the philosophy that prices, not regulators, should drive market operations. But last July, with the memories of the February freeze still raw, the use of RUCs began to skyrocket."

"The direct cost of having those units on backup has been relatively low — about $6 million so far this year to cover generators’ cost of operating and fuel costs, plus profit, according to Bivens." (Carrie Bivens of ERCOT)

"But the process can create artificial scarcity on the market and lead to higher prices."

"While units operate for backup power, they are not counted as reserves by ERCOT, making it appear that less generation is online than there actually is." (according to energy consultant Alison Silverstein)

 

"it means fewer units can bid into the real-time and day-ahead markets because they’re being kept on stand-by."

"Bivens has estimated the cumulative costs of buying more electricity before it’s needed, and the resulting distortions to the wholesale market cost about $400 million in the last six months of last year" 

 

"Generators say most of the units that ERCOT is forcing to operate are among the oldest, in some cases 50 or 60 years old. Keeping them running — even if they don’t provide power to the grid — only adds to wear and tear and makes them more likely to break down in the future, said Amanda Frazier, senior vice president of regulatory policy with the merchant power company Vistra of Irving."

 

"Frazier added the conservative operating measures also do not provide incentives to build new natural-gas powered generation — both because of uncertainty with how the market will be redesigned in the future and the current move away from scarcity pricing."

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