Texas Capacity Market Essay

Ensuring sufficient generating capacity in order to preserve the stability of the electric grid is an item of concern for all RTOs and ISOs (from hereon referred to as ISOs). One way ISOs have tried to ensure that sufficient generating capacity is maintained is through the implementation of a capacity market. The following is an abbreviated summary of capacity markets and one of the alternative measures that the Electric Reliability Council of Texas (ERCOT) is currently considering for implementation.

ERCOT is the ISO that governs the intrastate electrical market of Texas; currently ERCOT is responsible for the electric power to approximately 23 million customers which represent 85 percent of Texas’ electrical load and 75 percent of the land

With a dwindling reserve margin, capacity markets are being suggested as a viable alternative to the current energy-only market that is implemented in Texas. Capacity markets are a mechanism that have been adopted by some ISOs around the country to ensure adequate future generation. The basic premise of a capacity market is that “generation companies receive payments both for the energy they sell and for the generation plants they own. These extra payments are called “capacity payments.” This differs from the current energy only market in Texas in that under a capacity market, generators are compensated for the electrical capacity that they are readily able to produce in addition to electrical capacity sold, and not just for the electrical capacity that is sold on the wholesale market. For this reason, generators can see an added benefit in revenue increases by increasing their generating capacity that may or may not be called upon to supply to the grid. In this instance, there are legal requirements that must be considered when pursuing new generation. One requirement that is present with creating new generation is compliance with the Cross State Air Pollution Rule (CSAPR). The CSAPR is intended to significantly improve air quality by reducing power plant emissions that cross state lines

Currently, ERCOT is exploring options to expand the ancillary services offered, with the following types of services being proposed: synchronous inertia response (SIR), fast frequency response service (FFR), primary frequency response (PFR), regulating reserve service (RR) and contingency reserve service (CR). All of these are expected to aid in ensuring a reliable supply of sufficient generating capacity; this is because of the following information regarding the Texas electrical grid. First, the reliability standards BAL-001-TRE-1, BAL-002-1 and BAL-003-0.1b implemented through section 215 of the Federal Power Act (FPA). ERCOT, belonging to the Texas Reliability Entity (TRE) which is subject to the authority of the North American Electric Reliability Council, must comply with meeting the requirements set forth by the aforementioned standards, which account for primary frequency response, disturbance control, and frequency response. This is where ERCOT’s ancillary services market is factored into generating capacity. Second is the Texas Renewables Integration Plan quarterly report of June 2010 had stated that approximately 10,073.5 MW of renewable generation exists, 9,914.6 MW being wind, and ahead of the projected January 1st 2025 “target” of 10,000 MW overall. As of March 28th of 2014, a press release by ERCOT stated that there is more than 11,000 MW of commercial wind capacity already in place with close to