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Texas grid looks to market reform to head off another Uri-like debacle

Promises were made that what happened in February 2021 would never happen again. And a market redesign that's underway is supposed to be the solution.
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Episode 24 of the Factor This! podcast is a crossover with Renewable Energy World's Texas Power Podcast, examining what has changed in the state since Winter Storm Uri left millions without power. Host John Engel is joined by Doug Lewin, host of the Texas Power Podcast, as well as Caitlin Smith from Jupiter Power and Apex Clean Energy's Mark Stover. The episode will be available on Nov. 7 wherever you get your podcasts.

It’s been more than 600 days since the lights went out for millions of Texans during Winter Storm Uri. 

The near-total collapse of the Texas grid can be attributed to a number of factors— and there has been no shortage of finger-pointing. 

Promises were made that what happened in February 2021 would never happen again. A market redesign that is now underway is supposed to be the solution. 

Check out Texas Power Podcast host Doug Lewin's breakdown of a report that analyzed the costs and effectiveness of three electricity market redesign proposals that are in front of the Public Utility Commission of Texas.

"Texas consumers should watch their wallets," Lewin wrote for Renewable Energy World.

One proposal, which resembles California's electricity market, could increase the cost of Texas electricity by $22.8 billion over the second half of this decade without significantly improving reliability, according to the report commissioned by the Texas Consumer Association.

Breaking down the options
  1. Load Serving Entity Obligation: The LSEO would effectively abandon Texas’ energy-only market and mimic the capacity market structure in California. In this short-term forward market, the state mandates purchases, and buyers can’t see what other buyers are paying. The LSEO is forecast to cost $8.5 billion in 2025 — a 35% increase in electricity costs in that one year alone — and $22.8b from 2025-2030. This structure would only slightly improve reliability, the report found. ERCOT would see an average of four large-scale outages in 10 years versus four under the current structure.
  2. Backstop Reliability Service: The BRS is basically a way to maintain old fossil-fuel plants as they retire and keep them operational. The Consumer Association study found BRS would result in less than two large outages every 10 years at a cost of $2.6 billion over the next eight years. That’s twice the reliability that the LSEO would deliver for 90% less money.
  3. Dispatchable Energy Credit: The DEC would give generators credits for high-efficiency, fast-acting gas plants and/or big two-hour batteries. It’s designed to get “new steel in the ground,” an outcome many legislators fervently want. The DEC would deliver reliability outcomes similar to the LSEO (four major outages every 10 years) but would cost less. In contrast to the LSEO’s $22 billion price tag, the DEC program would cost roughly $1.3 billion cumulatively in the first several years, then is expected actually to have negative costs of $2 billion each year from 2027–2030.

Caitlin Smith, the senior director of regulatory, external affairs, and ESG at battery storage developer Jupiter Power, said Texas is in a bit of a "weird limbo state" as the PUCT weighs market redesign proposals.

E3 Consulting is expected to deliver a report on the market proposals to the PUCT in the coming weeks (E3 also authored the LSEO proposal). But the Legislature, which meets again in January to begin a new session, has indicated a desire to weigh in on the redesign effort too, Smith said.

"It looks like a pretty complicated decision tree, which I think is hard," Smith added. "I think regulatory uncertainty is something we can all agree is tough."

Smith, Lewin, and Stover also discussed transmission policy and the impact of the Inflation Reduction Act in Texas. You can listen to the full episode of the Factor This! podcast on Monday, Nov. 7.

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