Winds of change : assessing direct and indirect effects of variable renewable energy growth on the ERCOT market

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Date

2021-12-09

Authors

Ramthun, Eli Bjorn

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Abstract

Wind generation in Texas has been growing rapidly, and it is poised to create major disruptive shifts in the generation only market of the Electricity Reliability Council of Texas. The average real time price of electricity has been declining in this market in part due to the merit-order effect, where low marginal cost variable renewable generation undercuts thermal baseload generators with higher operating costs. In a generation only market, depressed energy prices can reduce the economic viability of baseload generators, threatening grid reliability with narrow reserve capacity margins. This work performs empirical analysis on a large market dataset using quantile regression to quantify how the seasonal, diurnal, and regional variation of merit-order effect varies in intensity throughout the distributions of price and as wind generation has increased over time. We demonstrate that while the merit-order effect has increased in intensity alongside increased wind penetration for high percentiles of market prices, the effect is overall reducing in magnitude relative to the amount of wind generation in the system, from a price reduction on top quantiles of price of $11 per GWh of wind generated in 2011 to a respective $5 decrease in prices for the same quantity of wind generation in 2019. This finding alleviates some concerns of baseload generator profitability in the long-term as the price depression from the merit-order effect trends towards zero. We follow with a discussion of the implications for the market as large amounts of solar are poised to come online in the coming years, which will accordingly exert a large but temporary merit-order effect as penetration begins to reach significant amounts. We conclude with policy recommendations to mitigate any potential adverse consequences on grid reliability due to the upcoming short-term price disruptions that will be associated with the ramp up of solar PV capacity in the grid

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