New York and ERCOT taking drastically different steps to address market reform
In a tale of two very different states, a national panel at the recent Gulf Coast Power Association conference outlined the stark contrast between steps being taken in New York and Texas as both single-state ISOs work to overhaul their grid structures.
The panel took place on April 19 and was moderated by Baker Botts Partner Michael Yuffee. It included Clean Energy Buyers Association’s Senior Director of Policy Innovation Bryn Baker, NYISO’s Director of Market Design Mike DeSocio, and Potomac Economics’ ERCOT Independent Market Monitor Director Carrie Bivens.
Yuffee illustrated the different approaches the two states are taking clearly; while New York is requiring 70 percent of generation to come from zero emissions by 2030 with a full transition to no emissions to be completed by 2040, Texas is currently considering adding 10 GW of natural gas generation and “essentially banning further renewable development.”
Yet, despite the two very different approaches, the states are facing similar concerns. Both states are facing “tremendous load growth,” as characterized by DeSocio, operational flexibility issues, ramping issues, and growing interconnection constraints. But while DeSocio says renewables will make up the vast majority of the state’s plans to “triple its load growth,” Bivens walked through Texas’ proposed performance credit mechanism that would incentivize the addition of natural gas resources, which would be on top of the state’s current proposal to add 10 GW of backup natural gas generation as outlined by Yuffee.
Uniting all the panelists was the concept of keeping competitive wholesale markets in place, something critics argue Texas’ proposed state-backed natural gas generation would undermine. Baker noted that wind and solar saved Texas customers USD 11m last year alone and that “directly taking aim” at renewables despite customer demand would be “counterproductive.”
“Customers are looking for access to clean energy,” Baker said. “This should be a fundamental business consideration for the development of market design right along with affordability and reliability. If we undermine the function of our markets, we will lose least cost options.”
“The market can meet challenges if we let it work,” Bivens agreed. “The market already does a good job of responding to ERCOT price signals; high demand in the summer naturally incentivized solar and volatility in the market naturally incentivized energy storage. We don’t need to take these extraordinary steps being considered.”
However, the panelists differed in their approach toward out of market contracts. While DeSoto said New York was open to them as long as they are “structured to respond to the in-state wholesale market to properly reflect reliability, cost and pricing,” Bivens said she thinks ERCOT should “avoid out of market actions.”
“Out of market solutions have blunting effects on price formation and don’t send correct price signals to guide investment,” Yuffee agreed.
The panelists were more in line with addressing ramping issues through energy storage, which Bivens says ERCOT should incentivize. DeSoto meanwhile says New York is currently in need of longer duration storage to address its “increased ramps up to several hours longer,” and is considering changing duration requirements to address this.
Both states are also keeping an eye on transmission constraints, which have historically been most disruptive in RTOs like MISO and PJM rather than single-state ISOs. Nevertheless, Bivens said even in ERCOT transmission constraints are up consistently year-over-year and accounted for more than USD 600m in additional electricity costs in 2022 alone.
Nationwide, Baker said the U.S. is up to an estimated 2 TW of projects stuck in interconnection queues, which she says is starting to have real impact on customers seeking new builds contracts.
“Sometimes energy customers aren’t getting anything back for RFPs or things are falling apart for selected projects late-stage.”
DeSoto concluded, calling transmission congestion the “biggest thing impacting the market,” arguing ISOs will “have to change the structure of the system the market is built on top of.”
“If we can do that, markets are going to evolve and prices are going to move,” DeSoto said. “It is exciting and nerve-racking given the uncertainty.”
*This story was originally published exclusively for NPM subscribers last month.
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