ERCOT’s Free Market Design is Working to Balance Reliability and Affordability for Texans
December 18, 2017
The following can be attributed to Tony Bennett, president and CEO of the Texas Association of Manufacturers (TAM).
The Electric Reliability Council of Texas (ERCOT) remains a shining example of how a successful, competitive energy market should be designed. In relying on free market principles rather than administrative and regulatory intervention, the ERCOT market strikes the right balance between reliability and costs for Texas customers. As we have seen in other states, government mandates and market interventions dramatically increase the cost of electricity without improving reliability.
This morning, ERCOT released its most recent projection of Capacity, Demand and Reserves (the “CDR” report). The CDR report estimates the amount of generation expected above and beyond what is actually needed to meet customer demand. Not surprisingly, projected generation reserves have dipped to reflect the significant coal retirements that occurred over the last few months. In a free energy market, price signals naturally encourage the replacement of older facilities with new, more efficient and reliable generation—and that is exactly what we are seeing in Texas.
In recent years, the CDR report has projected surplus generation reserves of 20% or more, which is far above the level that is economically optimal. Along with other factors, this oversupply has encouraged more than 4,000 MW of older, uneconomic units in ERCOT to retire since October. This important market correction paves the way for newer, more efficient and more economic generation to be developed, better serving customers. TAM expects new generation to quickly fill this temporary void in response to strong price signals for new generating capacity. In fact, ERCOT is already projecting that new generation will provide almost a 2.5% increase in reserves in 2019 as compared to 2018.
ERCOT is a testament to Texan ingenuity and commitment to free market principles. In a deregulated energy market, reserves will naturally fluctuate as turnover occurs within ERCOT’s generation fleet. This is a sign of a healthy, well-functioning market, and is no cause for regulatory intervention. TAM remains proudly committed to ERCOT’s successful market design and the reliability it provides for customers.
Contact: Gretchen Fox, 512-694-4326