Crazy ERCOT prices show ERCOT desperately needs its neighbors

Been a bit of a crazy week in Texas electric power markets. I’m writing this on Friday, July 15, 2022–the week is not over yet–but maybe things have settled down for the next few days. On Wednesday the wholesale price in ERCOT hit its $5,000 cap on the energy price for a while in the afternoon. At the same time prices in bordering power systems ranged between $75 and $125 per MWh.

I joked on Twitter how someone with an electric Ford F-150 pickup could make money charging up on one side of town in The Woodlands (connected to Entergy Texas in the MISO region) and selling the power on the other side of town (connected to CenterPoint in ERCOT). A Twitter user calculated that a truck with the “extended range” option could carry $600 worth of power each trip.

Power Price Maps from ERCOT, SPP, MISO, and WEIM (clockwise from top left) on Wednesday, July 13, 2022

On Thursday afternoon the price in ERCOT was about $50 MWh while neighboring prices were all over $100. In fact, most of the time power prices are a little cheaper in Texas. There are currently a few small High Voltage Direct Current (HVDC) connections between ERCOT and its neighbors, but these HVDC interties are not readily available for commercial use and are too small to capture all of the potential gains from trading across the regions.

Connecting ERCOT with neighbors has been proposed before, a few times, and gets shut down in Austin by two groups (A) folks worried about loss of Texas jurisdiction over a Texas interstate market, and (B) industry consumers who believe they benefit from trapping low cost wind and solar power output in state. High-cost power generators actually do benefit from blocking interties.

(A) is a real concern, there are benefits from regulation in Austin rather than Washington DC. Among other things, ERCOT serves as an alternative “experiment” in RTO design that can serve as contrast to the other US RTOs which are all regulated by FERC in Washington DC. Oversight by a single agency cannot help but dampen some reasonable exploration of possibilities simply because the experts there will hold views about the best ways things should be done. In any case, the two most promising intertie projects both secured rulings from FERC saying the projects would not upset existing jurisdiction over ERCOT. Still, political opposition delayed and in at least one case halted development.

(B) is just wrong headed. Interties will yield lower average prices and less volatile prices in ERCOT. It doesn’t take a detailed analysis to demonstrate the point: just look at the picture and then imaging how things would change if, say, 5 GW of power could be brought in through four or five interties spread around the state. Not too hard to imagine prices in ERCOT would have nearer $1,000 than $5,000 MWh on Wednesday (and, yes, prices in neighboring areas would have been higher, but because surrounding areas are connected through the rest of the country prices in those areas might have climbed from $120 to something like $150. On Thursday power flows could have gone the other way, maybe pushing ERCOT prices from $50 to $100 while bring down neighboring prices from $120 to $110 or so.

The price changes are all guestimates. With a commercial power market model it would be easy enough to do quality estimates. (For a large fee, I can have one done! Contact me!) In fact the regulatory documents filed surround the Tres Amigas power state and the Southern Cross transmission project likely both contain this kind of analysis. While they would be out of date, they would provide some sense of the scale of benefits.

In addition, Texas has a lot of land suitable for wind and solar power generation. The ability to produce and ship that power out of state would further boost the state’s position as an energy development powerhouse. At the present we are getting into more frequent wind-on-wind competition leading to curtailment of clean energy. We are a likely soon to see some solar-on-solar competition, too.

Finally, during extreme conditions, both in Summer peaks and Winter peaks, interconnections can be lifesaving. No one needs to be reminded that people died in Texas during Winter Storm Uri because of the days long outages suffered by some consumers. Even with a handful of added interties it is likely ERCOT would have suffered outages during the February 2021 winter storm. However, the amount of load shedding would have been smaller and easier to rotate across consumers, with lifesaving results.

The ERCOT market is become more volatile and prices are higher than they would otherwise be because influential market participants and parochial interests in Austin have frustrated efforts to link up. The Southern Spirit transmission project–I think it is an adaptation of the Southern Cross project–continues to work its way through commercial and regulatory hoops. ERCOT needs it and a handful more reaching north and west.