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Talk of creating a capacity market in ERCOT, for the moment, seems to have died down. According to the news, ERCOT has a new way to forecast load, so things will not get bad quite as soon as we all thought. According to other news, many in authority in Austin now wonder why we’ve always thought loss of firm load is such a bad thing anyway. So, all in all, let’s just talk about a capacity market later.

However, in the opinion of this REP, now is the time to talk about the issue.

Texas population continues to grow. In Texas, businesses continue to grow and be created. Meanwhile, existing generators continue to age. And, while mild and severe seasons cause year to year load growth to be non-linear, load is certainly and steadily growing. The risk of resource inadequacy will only increase with time, so why not address the possible solution offered by a capacity market now, while there is time to do so in a considered way?

There would be no shortage of things to consider. What types of generation should be encouraged? Importantly, should payments just be based on installed capacity, or instead tied to actual performance during times the grid is stressed? What limits should be placed on energy bids from a subsidized resource? How much money will need to be thrown at the problem to effectively help?

More importantly, will the ERCOT market, for the foreseeable future, continue to be energy only, a system in which generators have to recover capital costs by selling their energy well above actual costs?

Increasing the maximum permissible energy bid cap from $1,000 / MWH to $9,000 / MWH, as a way to attract new resources to ERCOT does seems like a dubious long term strategy. The more resources you attract, the less likely you are to experience a period of sustained high pricing: hardly the basis of a sound business plan to meet debt service. While the potential volatility associated with a $9,000 market has created speculative opportunities, in the end does that make ERCOT a better place to serve load than the existence of a healthy reserve margin? Would the costs of a capacity market not constitute in practice a form of insurance against the harm of increasing occasions of firm load being shed?

These are not simple issues by any measure. Does it truly seem wise to wait for the pressure resulting from more frequent rotating blackouts to begin to discuss them? In the opinion of this REP, now is the time to address these issues. And, frankly, preferring to wait until the problem is worse is to clearly give an answer to the most important question: namely, is the loss of firm load such a bad thing anyway?