The latest effort by the operator of Texas’s electricity grid to ensure reliability has created an artificial scarcity of supply and likely raised wholesale costs by about $8 billion, according to a new analysis.
(Bloomberg) — The latest effort by the operator of Texas’s electricity grid to ensure reliability has created an artificial scarcity of supply and likely raised wholesale costs by about $8 billion, according to a new analysis.
The Electric Reliability Council of Texas in mid-June introduced a new pool of power reserves that could come online quickly to help keep the grid stable. The Ercot Contingency Reserve Service, or ECRS, was designed to tap supplies that can come online within 10 minutes to help fill in for solar power dropping at sunset and to keep the grid’s frequency in check.
Ercot has been under intense pressure to avoid a repeat of the rolling blackouts that occurred during the deadly winter storm of February 2021. Demand has repeatedly threatened to exceed supply during the extreme heat and humidity experienced this summer.
Potomac Economics, a firm employed by the state as the independent monitor of the Texas power market, published its analysis of ECRS on Friday. It said that while the initial estimate for additional costs is $8 billion, the number is likely to increase.
Read More: Texas’ New Electricity Rules Sent Grid Prices Soaring
On Thursday, Bloomberg published an analysis that showed ECRS was responsible for 2,000 megawatts of relatively cheap power supply sitting idle on the afternoon of June 20, when real-time prices soared to more than $4,500 per megawatt-hour.
The report from the monitor helps shed additional light on the effects of the ECRS. Some market participants said they had undertaken their own analyses to understand the cost, but the monitor is in a unique position because of its access to non-public Ercot data.
How Ercot decides to procure reserves through products known as ancillary services “can substantially affect the market outcomes, precise and costs,” Carrie Bivens, the director of the independent market monitor for Ercot, wrote in the report. “These effects have never been more apparent after Ercot’s implementation of the Ercot Contingency Reserve Service.”
The decision to nearly double the amount of online reserves Ercot requires to be on standby has resulted in shortage pricing, according to Bivens. This practice has also created “substantial challenges” for managing grid bottlenecks because there is less supply available to alleviate congestion, she said.
In Texas, jumps in real-time market prices aren’t immediately felt by customers. But as fixed electricity contracts roll off, higher prices will eventually make their way to ordinary Texans.
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