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Texas's operating reserve demand curve's generation investment incentive

Jay Zarnikau (), S. Zhu, C.K. Woo and C.H. Tsai

Energy Policy, 2020, vol. 137, issue C

Abstract: Faced with reserve margin projections well below the adopted target of 13.75% of the system peak forecast, the Public Utility Commission of Texas on 01/17/2019 ordered the state's grid operator, the Electric Reliability Council of Texas, to “right shift” the operating reserve demand curve (ORDC) to increase generators' revenue from energy sales in ERCOT's real-time market (RTM). Using a large sample of 15-min data for the backcast period of 01/01/2015 through 12/31/2018, we calculate the ORDC shift's impact on RTM prices and investment incentives for natural-gas-fired generation (NGFG). Had the ORDC shift been in effect in the backcast period, the resulting RTM price increases in 2018 could suffice to justify NGFG investment, though not in the prior years of 2015, 2016 and 2017. While the actual ORDC shift occurred on 03/01/2019 had a large impact on RTM prices in the ensuing six-month period of March–August 2019, Texas's planned renewable generation is expected to erode NGFG's operating profit, thus diminishing the ORDC's investment incentive over time. Hence, Texas's energy-only market design will likely need further refinements to solve the missing money problem of inadequate NGFG investment incentive.

Keywords: Investment incentive; Missing money problem; Natural-gas-fired generation; Operating reserve demand curve; ERCOT (search for similar items in EconPapers)
JEL-codes: D47 G12 Q31 Q41 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.enpol.2019.111143

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