Flexible generation is suited to the ERCOT market
- Market structure. ERCOT’s unique scarcity pricing mechanism is designed to reward fast and reliable generation capacity. The scarcity pricing mechanism, i.e., the ORDC, creates a real-time price adder to reflect the value of available reserves and is meant to incentivize resources to produce more energy and reserves
- Growing renewable penetration. Texas has a significant renewable energy potential. In addition to the existing 22 GW of wind and 1.8 GW of solar capacity, the ERCOT queue includes 14 GW of wind and 8 GW of solar with executed Interconnection Agreements. Increasing renewable generation suppresses baseload margins, but benefits flexible generation.
- Declining reserve margins. More than 5 GW of coal capacity has retired since 2017 within the ERCOT footprint. ERCOT still has 15.5 GW (22% of peak demand) of coal generation capacity with an average age of 32 years. As coal generation capacity continues to leave the market, the demand will be met by a mix of flexible peakers and renewables, as the new build CCGT pipeline is limited
- Growing demand for ancillary services. With increasing penetration of renewables (which can’t offer ancillary services) and intermittency of this type of generation the demand for flexible capacity will increase.