Texas electricity grid rises to challenge of heat wave

Unique Texas electricity market designed to manage spikes in demand while keeping prices reasonable

The Texas power grid remained cool in the face of a heat wave last week, when electricity demand reached a new record of 69.8 gigawatts (GW) between 4 p.m. and 5 p.m. on Aug. 10, according to the US Energy Information Administration.

The Electricity Reliability Council of Texas (ERCOT), the operator of the electric grid covering most of the state, was able to handle this extremely high demand without any system emergencies.

In its summer 2015 reliability assessment, the North American Electricity Reliability Corporation (NERC) had forecasted a higher reserve margin for Texas’s electric grid this summer (16.24%) compared with previous years (14.98% in 2014). Reserve margins reflect the amount of available generating capacity in the absence of unplanned outages at projected peak system demand.

Reliability planning helps to ensure that there are enough electricity supply and transmission resources to meet demand even if there are unexpected outages of generation plants or transmission lines.

Although sustained high summer temperatures and strong population and economic growth pushed peak demand higher than forecast, the grid has performed as expected.

In August 2011, ERCOT declared several emergencies in an effort to reduce electric demand. Rolling power outages were avoided because load curtailment was carried out through demand response and interruptible load contractual agreements, calls for voluntary conservation, and execution of short-term contracts that brought four generators back from nonoperating status.

Since then, grid operators have worked to better ensure reliability in ERCOT.

Unlike all other U.S. regional transmission organization wholesale electricity markets, ERCOT has neither a capacity market nor a requirement that energy suppliers build or purchase reserve capacity to meet unexpected supply shortages.

Instead, ERCOT allows wholesale prices to rise relatively higher than in other markets during system emergencies. This encourages consumers to conserve energy while relying on high wholesale electricity prices to spur investment in generation resources.

Price caps are instituted in wholesale markets so that generators cannot charge unreasonable prices when power is scarce.  ERCOT price caps have risen from $1,000 per megawatthour ($/MWh) at the 2001 start of retail competition to $9,000/MWh since June 1 of this year. ERCOT has made efforts to encourage market transparency and disclosure to discourage companies with market power from overcharging during system emergencies. ERCOT day-ahead zonal prices were near $2,250/MWh during the hour of greatest demand on August 10.

ERCOT has taken additional price-related actions to encourage investment in generation.

These actions include adding a premium to real-time prices when resources are scarce based on the outage risk and the lost value to consumers of an outage, establishing price floors for emergency response services to keep prices from falling during emergencies, and allowing generators to earn a capacity price for reserving a limited amount of capacity to provide ancillary services.

ERCOT has also added more generating capacity and demand response.

Since last year’s NERC summer assessment, more than 6 GW of new generating capacity, mostly natural gas and wind, has been installed in ERCOT.

Year-to-date through August 11, Texas used a record-high 4.5 billion cubic feet per day of natural gas to help fuel the state’s expanded power generation needs.

ERCOT also has several types of demand-response programs that allow participants to bid in a price for either voluntarily using less electricity or by running distributed generation resources. Together these demand-response programs represent 3.4% of the ERCOT total internal demand forecast.