The Electric Reliability Council of Texas (ERCOT) market, which spans most of Texas, is the most popular power market for corporate buyers to source renewable energy contracts, reflected in the fact that it has captured the greatest share, 39%, of the corporate renewable energy market over the past five years.
The ERCOT market offers the most robust inventory of renewable energy projects available for offtake and Power Purchase Agreement (PPA) pricing in ERCOT is among the lowest in the United States.
In the first quarter of 2021, Edison Energy saw over 26,000 MW of renewable projects seeking offtake and of those 26,000 MW, over 11,000 MW were in ERCOT. ERCOT has also historically been the most mature market for contract structures beyond a standard virtual PPA. However, bills proposed by the Texas Legislature offer a misguided approach to addressing the recent extreme weather events in Texas, threatening existing and future renewable contracts.
The Texas Legislature is considering punitive ancillary service charges to renewable energy projects in the wake of February’s winter storm Uri. SB 1278, companion bill HB 4466 and omnibus bill SB 3 seek to direct the Public Utilities Commission of Texas and ERCOT to assign the costs of ancillary services to intermittent resources like renewables and require renewable developers to purchase ancillary services and replacement power to manage net load variability.
Ancillary services are those that ERCOT procures to maintain frequency and reliability on the grid, standby power smoothing supply and demand throughout the day, filling any outage gaps, and tracking load to meet net variable load.
The aggregate costs of these services are shared by the market, an approach that Edison Energy supports.
Under the proposed legislation, it is estimated to cost renewable generators $300-500 million per year to procure ancillary services, which would raise Power Purchase Agreement (PPA) prices in ERCOT. This change applies to all renewable generation, not just future new generation. Depending on contract terms, the offtaker will be directly impacted financially if language allows law change effects to be passed through to the renewable buyer. If the cost remains with the developer, owner, or operator and not with the buyer, the developer will face financial risk and may need to revisit the contract to maintain operation.
Market design is extremely complex, and proper cost causation and allocation are general principles in the design. While market design might require changing certain rules and allocating additional ancillary service charges or balancing costs to certain resources, these discussions should occur at the regulatory level. Instead, this legislation would impose ancillary service charges in a vacuum, without considering and determining the root causes of the extreme weather events and identifying solutions accordingly. Rather than predetermine the outcome of any investigation into the events and inappropriately penalize certain resources, Texas should consider grid reliability comprehensively, recognize the nuances behind this issue and consider all possible solutions, which may ultimately include cost causation and allocation such as ancillary service charges. At this point, however, these bills put the cart before the horse.
There is a healthy debate on how Texas can ensure grid reliability going forward, but this legislation is not the solution to address these complex market design issues. Under these circumstances, applying costs to one form of generation is discriminatory, and does not address the root causes of the grid failure from the winter storm.
Edison Energy is joining the renewable energy buyer community to oppose legislation in Texas that is estimated to increase renewable Power Purchase Agreement (PPA) pricing in ERCOT by 10-15%.