The average price of electricity in Texas' largest electricity market almost tripled over prices in 2020, said Carrie Bivens, who monitors competition in the ERCOT electric grid for Potomac Economics. Speaking at an Aug. 16 virtual forum, 2022 IMM State of the Market Report, Bivens said this "represented a real-time energy value of $32.2 billion.
Bill Peacock, policy director for the Energy Alliance, said renewables are the issue. "If Texas and the federal government continue to throw billions of dollars every year at renewables, investors will keep building new wind and solar farms in Texas. The ORDC will not make a substantial difference in increasing reliability."
The Texas electricity grid has been struggling to handle the increased generation of electricity by renewables over the last 10 to 15 years, he said in a blog at masterresource.com. In 2012, he said, "wind’s market share was 12.25% and solar’s 0.03%," and in 2022, wind farms generated 25% of the electricity used in ERCOT and solar farms generated 5.65%.
Bivens said three factors led to the increase in Texas electricity prices. One was natural gas prices, which jumped from $1.99 per one million British thermal units to $5.84. A second factor was the hotter summer last year. "And, on top of that, we have the Operating Demand Curve shift," said Bivens.
The Operating Reserve Demand Curve, or ORDC, was put into place by the Public Utility Commission of Texas (PUCT) back in 2013 to give the PUCT the ability to manipulate market prices. The "Operating Reserve Demand Curve serves to add money to the prices," Bivens said.
The goal of the ORDC was to give the PUC a tool to encourage reliable generators, such as those that use natural gas, to increase output during times of high demand. But the PUCT significantly changed the nature of the ORDC last year. Rather than incentivize more generation in times of scarcity, the ORDC is much more likely to increase generators' income when grid "conditions are not particularly tight," said Bivens.
Even though it's no longer focused on times when supplies are scarce, the ORDC still plays a significant role in increasing wholesale electricity prices, Bivens said.
The total impact of the ORDC in 2022 was to raise wholesale electricity prices by $3 billion in 2022, Bivens said. Most of the ORDC revenue went to electricity produced by natural gas, coal, or nuclear generators, which received $2.5 billion from the ORDC. Wind and solar generators received $423 million from the ORDC, she said.
Peacock said the intermittent nature of renewable generation led the PUCT and the Texas Legislature to use price adders like the ORDC to incentivize more reliable generation from natural gas, coal, and nuclear fuel, but the price adders haven't had much impact.
Energy+Environmental Economics, a consulting firm hired by the PUCT to review proposed changes to the ERCOT market, estimated that 99% of all new generation on the grid will come from wind (16%) and solar (83%) generators, a PUCT report says. Potomac Economics' State of the Market report says that thermal generation will continue to decline through 2027 and that new wind and solar generation will dominate the reserve margin, the amount of generation available over project demand for electricity. Peacock said this will leave the grid highly dependent on the weather.
