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SOURCE The Brattle Group
CAMBRIDGE, Mass., Feb. 3, 2014 /PRNewswire/ -- Economists at The Brattle Group released a study on Friday that estimates what planning reserve margin would be economically optimal in the Electric Reliability Council of Texas' (ERCOT) wholesale electricity market. The study finds that ERCOT's current energy-only market design can be expected to support an average reserve margin that is above the risk-neutral economic optimum, but substantially below the reserve margin consistent with the traditional reliability standard. The study also shows that the current energy-only market design exposes customers and suppliers to higher price volatility and reliability risk than under higher reserve margins. Mandating higher reserve margins would mitigate risks at a slightly higher cost.
The analysis was based on detailed simulations of the ERCOT power market using SERVM, a probabilistic reliability modeling tool. With their partners at Astrape Consulting, the Brattle authors undertook detailed simulations of the ERCOT power market, including weather patterns and other drivers of load uncertainty, generation dispatch costs, generation and transmission outages, intermittent wind and solar generation, different types of demand response, operating reserves, the full range of emergency procedures and their costs, scarcity pricing provisions, and load shedding protocols.
Based on these simulations, the Brattle study finds that:
"This analysis indicates that ERCOT's current market is not likely to lead to poor outcomes from an economic perspective. However, mandating higher reserve margins could reduce certain price and reliability risks, at a modest incremental cost. This study quantifies these tradeoffs and discusses the practical implementation challenges that ERCOT and stakeholders would face if they decided to introduce mandated reserve margins or a capacity market," said Samuel Newell, a Brattle principal and co-author of the report. "Additionally, it is important to recognize that increasing reserve margins will not address all system-level reliability challenges, nor will it improve the much more frequent distribution-system-related reliability events."
The study, commissioned by the Public Utility Commission of Texas (PUCT), was authored by Brattle Principals Samuel Newell and Johannes Pfeifenberger, Senior Associate Kathleen Spees, Brattle Research Analyst Ioanna Karkatsouli, and Nick Wintermantel and Kevin Carden of Astrape Consulting. The report, "Estimating the Economically Optimal Reserve Margin in ERCOT," is available for download at www.brattle.com.
The Brattle Group analyzes complex economic, finance, and regulatory questions for corporations, law firms, and governments around the world. We are distinguished by the clarity of our insights and the credibility of our experts, which include leading international academics and industry specialists. For more information, please visit www.brattle.com.
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