Principal Solar Institute

Ron SeidelDirector, Principal Solar

Ron Seidel is principal of RBS Energy Consulting, working with private equity, investment banks, and government on electric energy issues primarily in the ERCOT market. Previously, he was president of Texas Independent Energy, senior vice president of Energy Supply at City Public Service of San Antonio, and an executive at TXU where he was senior vice president of Fossil Generation and Mining, president of TXU Energy Trading, and operations manager at the Comanche Peak Nuclear Plant.

“How Do Recent Changes At ERCOT Affect You?  An update on the ERCOT Resource Adequacy

Situation "

Source: ERCOT

The ERCOT System

Texas Ties to Mexico and the Eastern Interconnection

Wind9%

Hydro, biomass, other

1%Nuclear

12%

Coal34%

Natural Gas44%

Energy Produced2012

325,000 Gigawatt-hours

Source: ERCOT

ERCOT Capacity and Energy2012

Wind13% Hydro,

biomass, other1%

Nuclear 6%

Coal23%

Natural Gas57%

Installed Capacity2012

69,480 Megawatts

ERCOT Facts & Figures

200,000 Square Miles 40,530 miles of Transmission (2012)74,000 MW Peak Capacity10,574 MW of wind generation 67,180 MW Peak Load (2013)

– Increase of 632 MW over 2012 Peak Load (1%)– Reduction of 1,125 MW from 2011 Peak Load (-1.6%)

13.75% Target Reserve Margin

Source: ERCOT

ERCOT Load Growth

ERCOT Projected Average Load Growth 2014 – 2022 is 1.5% or ~1,050 MW per year– Down from over 2% in previous ERCOT projections

Equivalent to– One nuclear plant each year– Two coal plants each year– Two combined cycle gas plants each year

Sources: ERCOT , RBS Energy Consulting

ERCOT Reserve MarginsDecember 2012 / May 2013 Reports

2013 2014 2015 2016 2017 2018 2019 2020 2021 20220.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

Target =13.75%

Source: ERCOT

%

December 2012 May 2013

ERCOT Capacity Reserves Increase(but are still below target after 2014)

Target =13.75%

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

May 2012 CDR December 2012 CDR May 2013 CDR

ERCOT Reserve MarginActual versus Target

2011 2012 2013-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%Reserve Margin

Target Reserve Margin = 13.75%

Why is Resource Adequacy an Issue?

Low natural gas prices reduce financial viability for new resources

Peak power prices have been limited, restricting revenue for generators – especially peakers

Market energy prices have not sent adequate signals to incent new capacity investment

Electricity demand growth in Texas is significant, creating the need for new capacity

May not be an issue

Questions

What can be done to incent the development of new capacity – especially peaking capacity?

Can the current energy-only market be modified to provide the necessary incentives?

Should some form of capacity market be developed to ensure adequate resources are available when needed?

Are the methods used for forecasting of demand and resource growth appropriate?

Public Utility Commission Actions

Raised the System Wide Offer Cap (SWOC)– $4500/ MWhr beginning August 2012– $5000/ MWhr beginning June 2013– $7000/ MWhr beginning June 2014– $9000/ MWhr beginning June 2015

Process for recalling mothballed units for peak months Better pricing for ancillary services and RUC units Increased Peaker Net Margin to $300,000 or 3 X cost of new

entry Operating Reserve Demand Curve by Summer 2014 designed

to increase prices during scarcity periods Mandatory versus target reserve margin

Source: The Brattle Group

Mandatory Reserve Margin Decision

Supported by Commissioners Marty and NelsonOpposed by Commissioner AndersonSenator Fraser opposes action

– Beyond PUCT authority– Will hold a hearing

First step toward capacity market?– PUCT/ERCOT auction to ensure adequate capacity– Retail Electric Providers procure capacity

ERCOT Activities

Wind Reliability factor increased– From 8.7% to 14.2% for West Texas wind– From 8.7% to 32.9% for Coastal Wind– Added over 900 MW of reliable resources

Revising Load Forecasting MethodologyNew Demand Response Initiatives

– 30 minute Emergency Response Service Pilot– Market bid demand response on 5 minute

intervals

Future PUCT Considerations

Should the electric market in ERCOT provide the same level of reliability as currently provided under ERCOT's reliability standard? Is another standard more appropriate? – ERCOT: 13.75% target reserve margin, or– NERC: 15% reference reserve margin

What should the mandatory reserve margin be and how should it be ensured?

How can ERCOT's Capacity, Demand, and Reserves report be improved?

Can the CDR report be used to measure the ERCOT market's progress in achieving the planning reserve margin?

Waiting on a Brattle report due February 1Waiting on the ERCOT December Capacity,

Demand and Reserves Report

Current PUCT Considerations

The Players

Generators and PUCT Chair Nelson support a capacity market to ensure adequate reserves

Many consumers support continuing with an energy only market with improvements

Commissioner Anderson argues ERCOT has adequate reserves through 2018

New Commissioner Brandy Marty, appointed in August, will likely be the swing vote and now seems to favor a capacity market

What is a Capacity Market?

Can take many formsTypically provides generators a guaranteed

revenue stream sufficient to pay their full cost of production

Usually an auction – ~ Three years in advance of the delivery year – Existing and new capacity

Current market has some attributes of a capacity market–

PUCT Chairman’s Questions

What resources should participate?How far forward should procurement occur?Should load serving entities have reliability

responsibility?Should there be a transition mechanism?How should an auction be structured?How should self provision by load serving

entities be structured?

Where Do We Go From Here?

More PUCT Workshops / Deliberations / Rulemakings

No real capacity issue until 2015 when reserve margin drops to 11.6%

2013 Legislature did not address the resource adequacy issue. Will they in 2015?

My opinion: Some form of capacity market , possibly in early 2014

Potential Consequences

Addition of a forward capacity market– Higher costs for consumers– Minimal renewable participation– Excess capacity if reserve forecasts are inaccurate– Unanticipated and unintended consequences

Continuation of an energy only market– Higher costs for consumers due to tweaks– Insufficient capacity– Unintended and unanticipated consequences

Renewables Competitive

“…both natural gas and renewable resources are likely to be competitive across a broad range of potential future market outcomes.”-Long Term Assessment for the ERCOT Region, December 2012

U.S. & Texas Solar Intensity

Source: NREL

Achievable Solar PV Energy in TexasReference: ERCOT Peak Load ~68 GW

Urban PV = 154 GW (13% of U.S. Total)Rural PV = 20,000 GW (14% of U.S. Total)

Achieving just 1% of this capability would produce over 200 GW or almost three times the current ERCOT maximum load.

Sources: NREL, RBS Energy Consulting

Solar Synergy with Load

Source: RBS Energy Consulting

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ERCOT Load

Wind Profile

Solar Profile

Solar Growth

There were no solar projects in the ERCOT pipeline in December 2012

Currently, there are 19 solar projects under evaluation – Total over 1300 MW – Size range from 20 MW to 200 MW

All of these projects are schedule for completion by the end of 2015

Not all will be built

Wind Generation Growth with Renewable Portfolio Standards

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How Do Recent Changes at ERCOT Affect You?

Uncertainty will be around for some time to come.

A forward capacity market or modified energy market will result in increased customer costs for reliability.

The renewable contribution will increase, bringing benefits like cleaner air and, ultimately, lower energy costs.

Questions and Discussion

Ron SeidelDirector, Principal Solar

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