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

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  • Zarnikau, J.
  • Zhu, S.
  • Woo, C.K.
  • Tsai, C.H.

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.

Suggested Citation

  • Zarnikau, J. & Zhu, S. & Woo, C.K. & Tsai, C.H., 2020. "Texas's operating reserve demand curve's generation investment incentive," Energy Policy, Elsevier, vol. 137(C).
    • Handle: RePEc:eee:enepol:v:137:y:2020:i:c:s030142151930730x
    DOI: 10.1016/j.enpol.2019.111143
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    5. Papavasiliou, Anthony & Cartuyvels, Jacques & Bertrand, Gilles & Marien, Alain, 2023. "Implementation of scarcity pricing without co-optimization in European energy-only balancing markets," Utilities Policy, Elsevier, vol. 81(C).
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    More about this item

    Keywords

    Investment incentive; Missing money problem; Natural-gas-fired generation; Operating reserve demand curve; ERCOT;
    All these keywords.

    JEL classification:

    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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