Seeking Ways to Improve Grid Performance and the Real-Time Market, ERCOT Assesses Cost and Regulatory Impacts of Co-Optimization

August 15, 2017

The Texas grid performance – and especially that of the Real Time Market – is changing with the integration of more renewables that have different generation and output characteristics. ERCOT has been working to provide some alternatives to the market design to address these operational issues and provide adequate pricing signals for energy and ancillary services. The concept being put forth is called Real Time Co-optimization of energy and ancillary services.

The issue has been compounded by the added complexity of renewable generation – particularly the intermittency of energy from renewable resources –Wind, for example, is playing an increasingly important role in Texas, which has 21,000 MW of installed wind capacity – making the state the U.S. leader in development of the resource. AS we know, wind does not blow all the time and is hard to predict.

As a result, the Public Utilities Commission of Texas has asked ERCOT to study ways to improve the cost efficiency of procuring energy and ancillary services and sending the appropriate price signal for the types of generation services most needed to meet current market demands (Project 41837). Co-optimization – in which the services are procured simultaneously in the Real Time Market every five minutes – is one potential solution.

ERCOT’s desire for a change is being driven by a shift in generator characteristics that has affected how the Texas grid functions and, as a result, has posed a number of challenges for ERCOT. These include:

• Developing quicker response times to a changing mix of generating resources; for example, non-synchronous (wind and solar) change more quickly than conventional generators and require a different ancillary mix.
• Structuring rewards for fast-responding generators such as battery storage that currently are more costly but exceed standard response times when needed in the Real Time Market and match the speed of renewables.
• Procuring and adjusting ancillary services in the Real Time Market to address real-time scenarios.
• Enabling a better reflection of the real-time value of resources through an optimized market that provides appropriate market signals for scarcity pricing.

In response to these challenges, the PUCT in April directed ERCOT to evaluate the impact of co-optimization (Project 41837). Last month, ERCOT presented their findings to the commission, and the grid operator determined that implementing the pricing overhaul would require time, money, and regulatory changes:

• The PUCT would have to reconsider policy decisions such as the appropriate Value of Lost Load and System-Wide Offer Cap, a process that “would likely result in at least one change to a Commission rule”;
• The cost of the implementation would be $40 million at a minimum: The estimated time required to put real-time co-optimization in place would be four to five years, indicating “a large scale project that impacts multiple core ERCOT systems.” This would be on top of the nine- to 12-month time frame that would likely follow the ERCOT board’s approval of any commission policy decisions and applicable protocol changes.

In making its assessment, however, ERCOT noted that the projected expense and time frame for implementation were both “high-level and preliminary.”

The topic continues to be debated in the ERCOT stakeholder process. As the project moves forward, the ERCOT’s Supply Adequacy Working Group will update and present a white paper for stakeholders to review further. If the project and concepts are supported ERCOT stakeholders will begin to formally draft market protocol changes that will be debated at the committee levels, and if approved will be submitted to the ERCOT board, whose final approval is expected to take the nine to 12 months referenced above.