ERCOT Launches Improved Wholesale Market Design
State grid operator launches nodal systems for increased reliability
and more efficient markets.
The Electric Reliability Council of Texas, grid operator and manager of the wholesale electric market, today launched a market redesign and systems upgrade to improve grid reliability, increase market efficiency, and enable transparency of wholesale energy prices.
“This is a major step forward for the ERCOT region and the 22 million consumers we serve,” President and CEO Trip Doggett said. “The new nodal market gives ERCOT improved tools to manage grid reliability and transmission congestion with more transparent pricing and individual unit management.”
The start of full nodal operations officially began at midnight last night when the nodal prices became the binding prices to be used in financial settlement and billing, replacing the zonal market that has been in place since 2001.
Several of the major nodal systems have been running for a week or more in a non-binding mode as part of a “soft” market launch. ERCOT conducted the first financially binding day-ahead market yesterday morning for today, and system operators have been running the grid on the nodal load-frequency control system since Sunday.
“We are very pleased with how smooth the nodal launch has been so far,” Doggett said. “I think it’s certainly due in large part to the amount of testing and market trials by ERCOT and market participants up to this point. We appreciate the efforts of the market participants working with ERCOT to test our systems as well as the interaction with theirs.”
GROUND-BREAKING INDUSTRY FIRST
ERCOT completed almost 40 weeks of market trials leading up to today, which was critical because of the ground-breaking design of ERCOT’s nodal market, Doggett said.
“ERCOT is the first regional operator to build a common data structure for the network model,” said Mike Cleary, senior vice president and chief operating officer. The common information network model is an electric-transmission management system where utilities can interactively view and update the ERCOT transmission model with changes to the grid.
“This is an industry first – no other regional operator has accomplished fully centralized modeling data,” Cleary said. “This will provide more efficient entry by the market’s asset owners and more consistency between planning, operational and congestion revenue rights models – ultimately yielding more efficient energy management.”
Doggett said the nodal team is already working on additional refinements that were postponed until after the go-live date.
“As with all projects of this size and complexity, we expect to be dealing with refinement issues for several months,” Doggett said. “We recognize that there will be differences between market expectations and market reality. ERCOT will be working closely with the market participants to resolve those issues.”
Doggett also said a support team is in place to assist market participants in dealing with any stabilization issues they are dealing with in the new market.
SAVINGS EXPECTED FOR AVERAGE CONSUMERS
Residential consumers are not expected to notice any immediate impact from the new market because the changes affect the state’s wholesale electricity markets – not the retail markets.
However, in the long-term, “the enhancements to overall market efficiency should translate into substantial savings for consumers,” the Public Utility Commission’s independent market monitor said in a 2009 report. Also, a PUC-commissioned cost-benefit analysis by an independent consultant estimated consumer savings at $5.6 billion over the first 10 years of the nodal market in ERCOT.
The PUC directed ERCOT in 2003 to design a nodal wholesale market to improve market and operating efficiencies through more granular pricing and scheduling of energy services. The nodal market is expected to lead to lower overall electricity costs in the long term through:
- Improved use of generation resources through unit-specific dispatch – selecting individual units based on lowest price rather than on generation portfolios;
- More efficient management of transmission congestion through market-based mechanisms;
- More accurate price signals that better indicate where new generation and transmission is most needed (and where it is not) for managing congestion and maintaining reliability;
- Improved ability to efficiently and reliably integrate the increasing quantities of intermittent resources, such as wind and solar generating facilities.
In the former zonal market design, ERCOT managed transmission congestion through four price zones and energy schedules grouped in portfolios, rather than by individual unit. In the nodal market design, ERCOT is capturing prices at more than 8,000 “nodes” or any point where energy is added or taken out of the grid, including transmission lines, generators, electrical busses, breakers, switches and other similar devices defined in the network model.
Another significant change in nodal is that ERCOT determines the most economic dispatch of individual generation resources every 5 minutes, instead of 15 minutes.
Doggett thanked the PUC, board, employees and the region’s market participants for the support to bring the seven-year effort to completion.
“We appreciate the board’s leadership throughout this complex process as well as the hard work and expertise from employees at ERCOT and the region’s market participants – generators, utilities and retail providers – to get us to this history-making moment,” Doggett said. “This is a huge achievement, and it took all of us working together to make it happen.”
MORE INFORMATION ONLINE:
- Nodal Program Update (ERCOT Board presentation), Nov.16, 2010
- Why Nodal? (Sunset Commission presentation)
- Understanding Texas Nodal Market Implementation (brochure)
- Nodal training courses, materials
- State of the Market Report, Potomac Economics, ERCOT independent market monitor, prepared for the Public Utility Commission of Texas, July 2010
- Update on the ERCOT Nodal Market Cost-Benefit Analysis, CRA Resero Consulting, prepared for the Public Utility Commission of Texas, Dec. 18, 2008