Sierra Club: ERCOT Finally Values Wind Peak Capacity Using Actual Data

By Cyrus ReedThe Sierra Club | Lone Star Chapter

For the last five years, the Sierra Club has been in a healthy discussion at ERCOT (Electric Reliable Council of Texas) and the Public Utility Commission of Texas over how to calculate the value of wind energy during peak demand. Opponents of wind still use an antiquated yet lingering criticism that it tends to generate electricity mostly at night and not when Texas needs it the most – on hot summer afternoons. The state’s grid operator just assumed all wind generation had the same value at peak. Thanks in part to our efforts this isn’t the case anymore.

ERCOT and the PUC determined about eight years ago that wind provided only about 8.75% of its total capacity at peak demand. Ever since then, that peak capacity value has been used as the estimate of wind’s value at peak times. Even as the amount, technology, and location of wind resources has changed over the last 10 years, ERCOT has stuck to 8.75% as wind’s capacity at peak, or its “Effective Load-Carrying Capability” (ELCC). This is important because the PUC, ERCOT, and policymakers look to an ERCOT report known as the “CDR”, the Report on the Capacity, Demand, and Reserves, which comes out in May and December each year, which includes this ELCC for wind and other energy resources. They use the CDR to determine whether there will be sufficient electricity resources to meet peak demand.

Fast forward to about four years ago. ERCOT staff informed the PUC and stakeholders that 8.75% was not actually accurate and, in fact, undervalued wind capacity at peak. Several other numbers – ranging from 12-14% – emerged during stakeholder discussions, but neither the PUC nor the ERCOT Board of Directors were willing to change the sacrosanct 8.75% ELCC for wind. In part, the value of wind became the victim of a larger discussion over “resource adequacy” – whether or not Texas was going to create a new “capacity” market, or require those purchasing energy to pay for extra capacity to make sure there are adequate resources in the future.

While a small group of stakeholders have been discussing this esoteric issue, however, the inaccurate 8.75% figure continues to be referenced by those criticizing Texas’ large investments in wind and wind transmission to argue that wind doesn’t really help keep the lights on in Texas. Most recently, Comptroller of Public Accounts Susan Combs used the 8.75% ELCC estimate in her controversial and widely criticized report, Texas Power Challenge: Getting the Most from Your Energy Dollars (Page 3, Exhibit 2), a number that ERCOT has stated is inaccurate for more than four years.

Actual Data: A Novel Idea

Despite the persistent use of this inaccurate number, progress has been made in the last two years, and a major update has been made.

A number of ERCOT stakeholders, including the Sierra Club, have been pushing a new revision to ERCOT rules. Indeed, at a recent meeting of the ERCOT Board of Directors, the Sierra Club suggested using actual ERCOT data from wind power plants during peak demand as well as developing an average for different geographic regions rather than coming up with one single figure and assuming wind values don’t change over time.

On October 13, 2014, the ERCOT Board finally passed a rule change – known as Nodal Protocol Revision Request 611 – that does exactly what Sierra Club suggested in its comments. Rather than trying to come up with one number for wind’s peak demand capacity, the new approach averages the amount of wind in coastal counties during the top 20 peak hours, and the average amount of wind in non-coastal wind during the top 20 peak hours, and applies that average number for existing and future wind projects. Thus, actual data is used to create two averages, which are then applied both to existing and planned wind electricity projects. Those numbers will also be updated every six months as more data become available.

The big reason for two averages, as some readers may already know, is that wind in the coastal area of Texas has a much different profile than areas away from the coast, such as West Texas.

You Fixed A Number. So What?

Here’s an example of what this might mean. If we take the last three years of ERCOT wind data, the majority of wind would have been valued at 10.3% based on a three-year average.  But as time goes on, the data indicate it is likely the value will improve because newer wind turbines tend to have higher capacity factors.  Moreover, along the coast, the capacity values are much more impressive at peak demand because wind continues to blow during hot summer days – in fact, sometimes the capacity is even better.  Thus, the three-year top 20-hour values would generate a value of 55.6% for wind projects in the coastal counties.

Overall, averaging both the coastal and non-coastal counties, this new methodology would have raised wind’s carrying capacity from 8.75% to 16.3%, nearly doubling the assumptions of wind’s peak capacity value.  Because wind projects are continuing to be built both along the coast and in North and West Texas, these updated and more accurate estimates should more or less double the expected contribution of power from wind in the CDRs.

Let’s break it down even more. If the latest CDR, released in early 2014, used the up to date 16.3% carrying capacity of wind, (in line with the numbers presented at the recent ERCOT meeting) an additional 1,452 MW of capacity would be estimated to be added to the Texas market by 2018, therefore moving the reserve margin in 2018 from 13.4% to 15.5%. It may not sound like much out of context, but this is huge! Major investment and incentive decisions in new power plants are heavily influenced by the margin of reserves the state estimates it has. ERCOT’s current reserve margin target is 13.75%.  So we essentially cross over from inadequate to adequate reserves in 2018.

Thus, by more accurately representing wind’s capacity at peak electricity use, Texans and investors in Texas will be able to see more clearly what future resources might be needed. In essence, simply by using a more accurate figure for wind capacity, Texas just gained an improvement in its reserve margin by some 2%.

Way To Go Wind!

Table 1. How Total Wind Capacity Value Might Change for Current and Future Wind Projects Under New ERCOT-Approved Rules

Sierra_2014_10_29 - Table1

Table 2. How Coastal vs. Non-Coastal Wind Capacity Values Might Change for Current and Future Wind Projects Under New ERCOT-Approved Rules

Sierra_2014_10_29 - Table2

Table 3. How Increasing the Wind Capacity Value in ERCOT’s CDR Changes Resource Adequacy

Sierra_2014_10_29 - Table3For more information about this analysis, visit:  The Sierra Club | Lone Star Chapter