Texas lawmakers and energy experts aren't sure the new 'complicated' power grid market would work

Texas lawmakers and energy experts aren’t sure the new ‘complicated’ power grid market would work

AUSTIN — The agency tasked with overhauling the electricity market in Texas has proposed an untested structure in hopes of leaving the free-market system responsible for blackouts during the winter storm of 2021.

Texas lawmakers have ordered an overhaul of the state’s deregulated energy market, which Public Utilities Commission Chairman Peter Lake has called “crisis-based” because it incentivizes utilities. electricity to provide electricity at low cost, at the risk of compromising the reliability of the network.

The proposed “Performance Credit Mechanism” — or PCM, as it’s known in the acronym-heavy parlance of energy insiders — offers power producers a financial reward for keeping their plants available during times when Texans consume the most energy.

The model balances network resilience with free market sensitivities, Lake says. With his blessing, the PUC will pass it or adopt another design before state lawmakers return to Austin for the legislative session that begins Jan. 10.

Texas Public Utilities Commission Chairman Peter Lake poses for a photo in the commissioners’ meeting room inside William B. Travis Bldg in downtown Austin, Thursday, Oct. 28, 2021. Lake was appointed by Governor Greg Abbott in April for a term set until the end of September 2023. The president oversees the overhaul of the energy grid market. (Stephen Spillman / Special Contributor)

Lake says the PCM will encourage companies to invest in new natural gas plants, a top priority for lawmakers and energy insiders who fear the ascendancy of cheap renewable energy in Texas will weaken natural gas producers. But some doubt Lake’s claim and are scratching their heads at the model, which he said would take four years to implement.

“This plan is so complicated and has a long timeline to put in place, that it is doomed for everyone to fail,” Republican New Braunfels Senator Donna Campbell said at a recent hearing. Senate Business and Commerce Committee.

Senators from both parties seemed perplexed by the decision to sue the PCM.

Senator Charles Schwertner, a Republican from Georgetown who chairs the committee, questioned why the PUC should create a new, untested market mechanism to encourage companies to build new natural gas plants rather than directly providing public funds as an incentive. .

The report did not recommend the design

In a report commissioned by PUC released Nov. 10, consulting firm E3 evaluated several market designs and did not recommend the PCM, which would cost about $480 million per year more than the current market.

The report recommends Texas pursue a structure similar to a capacity market, which pays power generators even when their generators are offline to subsidize their operations and maintain an adequate supply of electricity during periods of peak demand.

“It’s fascinating to see the PUC go against the consultants’ recommendation,” said Austin-based energy consultant Doug Lewin.

The network’s independent market monitor said the E3 analysis was based on fundamentally flawed assumptions. And other experts question the scope of the report, which did not take into account weather conditions during the deadly winter storm of 2021.

Over the next few weeks, companies from all sectors of the electrical industry will submit their comments to the PUC.

The public and stakeholders have until noon on December 15 to submit their comments on the proposal.

“I can’t wait to see what the market and people tell us,” Lake said.

How performance credits work

If passed, the PUC would create an additional one-year market for the sale and purchase of so-called performance credits. Electricity producers would earn them by honoring the commitment they make at the beginning of the year to produce certain amounts of electricity at certain times.

They could then sell the credit to electricity suppliers, such as retail electric companies, municipal utilities and electric cooperatives.

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The grid operator, the Electric Reliability Council of Texas, would determine how many performance credits electricity providers must purchase based on the percentage of electricity they use.

“It’s incredibly complicated,” said Alison Silverstein, an energy consultant who previously worked for the Federal Energy Regulatory Commission and the PUC.

Silverstein said she doubts the performance credits market will encourage investment in natural gas facilities because it’s unclear whether power plants will even earn them.

“It’s the furthest thing I can imagine from a predictable revenue stream,” she said.

The total market value of the performance credit system would be based on a demand curve that has not been defined, but would likely be designed to encourage the construction of new natural gas-fired power plants, which Lewin, the energy consultant, said he thinks possible. .

“To be clear, I don’t like it overall,” he said of the PCM, “but one of the advantages it has is that it provides a pretty strong incentive” for construction of new gasworks.

At the consumer level, utilities could see the new market as a reason to promote energy conservation. The less ERCOT requires them to purchase performance credits, the greater the savings they could pass on to their electricity bills would be significant to consumers.

But it’s uncertain whether that would happen, and the overall cost of implementing the performance credits market would be higher, according to the E3 analysis.

An alternative

Lewin said he preferred a cheaper alternative called Backstop Reliability Service, or BRS.

It would contract certain power plants to be available at ERCOT’s request to produce power. In exchange, ERCOT would finance the maintenance and operation of these plants. This would keep some plants on the system that could be mothballed for years to come.

At the Senate committee meeting, some lawmakers seemed to prefer the BRS because it would be the easiest to implement and would have the least impact on ERCOT’s current market structure.

Lake rejected this hypothesis.

“We are paying for these generators not to participate in the market,” he said. “That’s one of the concerns.”

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