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Successful Renewable Energy
Development in a Competitive
Electricity Market: Texas
Jay Zarnikau
Frontier Associates LLC and The University of Texas
Austin, Texas
Renewable energy conference
December 3, 2010
Hong Kong Energy Studies Centre
Hong Kong Baptist University
December 2010
1
Themes

The development of renewable energy in markets with a high
degree of competition at wholesale and retail levels poses
some challenges that may not be present in areas served by
vertically-integrated utilities.

The intermittent nature of some renewable energy resources
can impact the entire wholesale market by affecting the
reliability, operations, and market prices.

Meeting renewable energy goals requires coordination among
many market players.

These challenges may be successfully overcome by imposing
goals, trading mechanism, and operational changes on
competitive markets.
2
The Green State of . . . . Texas?






Texas is home to most of America’s major oil companies.
Many of the state’s leaders deny any link between global
warming and human activities.
Texas consumes 12% of all energy resources used in the U.S.
The leading state in electricity consumption and production.
The leading state in CO2 emissions, with 10% of the nation’s
total.
Among the most competitive electricity markets in the world.
But. . . . Texas leads the nation in wind power!
Why?
3
Texas became a Net Importer of Energy
(If Btus are used as a metric) (Scale: Trillion Btu)
4
Further

Texas has the greatest non-hydro renewable energy
resource potential in the U.S.
5
In theory, Texas has the potential to satisfy all of its demand
(11.556 Quadrillion Btus) for energy with renewable
energy resources.
RESOURCE
Solar
Wind
Biomass
Water
(as electricity)
Geothermal
Wind Power
PRIMARY ENERGY USES
TOTAL
PHYSICAL
RESOURCE
(quads/yr)
4,300
22
ACCESIBLE
RESOURCE
(quads/yr)
250
7
9
0
500
X
X
0.1
400,000
0.02
81,000
10
600
X
X
X
X
ENERGY DENSITY:
GOOD TEXAS SITE Elect. Heat Mech. Trans.
(MJ/m²/yr)
8,000
X
X
500
X
X
X
X
NONENERGY
USES
Solar Energy
Food, feed,
and fiber
Water supply:
flood control
Geothermal
Energy
Biomass
Hydro Power
The Growth in Wind Power in MW
7
Most of the Development of Wind Power
has been in West Texas
8
Also, Small-Scale Photovoltaics are
Starting to Take Off
9
Also, Small-Scale Photovoltaics are
Starting to Take Off
Texas PV Installed Costs 2010 (YTD)
$14
$12
$/w
$10
AEP-TCC
AEP-TNC
El Paso
Entergy
Oncor
SWEPCO
TNMP
$8
$6
$4
$2
$0
0
5
10
15
20
25
Installed kW
10
Why has Texas been so successful?






Goals were set and a renewable energy credit trading program
was established
Good business climate
Growing demand for electricity
Federal tax credits
Excellent resource potential
Developer-friendly transmission interconnection policy
11
Challenge No. 1: Intermittency
(ERCOT data for 2007. A 8.7% coincidence factor is used to convert wind capacity to its
contribution toward meeting a summer peak in reserve margin calculations. Forecasting is a
challenge.)
5000
4500
4000
3500
3000
Hourly Wind Output
2500
Installed Capacity
2000
1500
1000
500
0
1
1
50
01 5 01
10
1
01
20
01 0 01
25
3
01
35
01
40
01 0 01
45
5
01
55
01
60
01 0 01
65
7
01
75
01
80
01
85
12
2200
3000
4700
7900
6900
6000
2900
6200
4600
2700
8300
10600
9600
12000
Challenge No. 2: The wind farms are in the
wrong place.
Source: Ercot
• ERCOT sponsored a
study to identify areas
with best wind resource
potential
• Identified highest CF
100MW sites and
clustered into 25 areas
• Identified wind capacity
potential (in MW) with
>35% capacity factor in
each area is shown
Challenge No. 2: The wind farms are in
the wrong place.
($5 billion is transmission system upgrades are planned.)
14
Challenge No. 3: Impacts on Wholesale
Prices
Wind farms sell into the market at a loss, but make up for
it with the Production tax credit. Divergence in prices among zones is common.)
15
Other Operational Challenges and Issues






Some early problems with “gaming” by wind farms. Eliminated
when ERCOT assumed responsibility for forecasting wind
generation output.
Forecasting wind generation is difficult.
Many wind farms not able to provide comparable levels of
reactive power and response to changes in system frequency.
As wind generation increased, ERCOT had to procure higher
levels of operating reserves (regulation and non-spinning
reserves).
Quick ramp rates of wind turbines create frequency problems.
Many wind generator owners had little experience with power
system operations.
16
New Questions as ERCOT Transitions to
a Nodal Market in a Couple Months



Can wind generators submit offers into a day-ahead market?
Can wind power capacity be used by load-serving entities to
avoid exposure to reliability unit commitment charges?
Can some wind generators provide ancillary services (e.g.,
operating reserves)?
17
Is it worth it?
Costs:
 $5 billion in transmission investment
 More operating reserves, which increase costs
 Cost of wind generation is about $80 per MWh
Add these together, and you get about $110 per MWh for wind
power (See Baldick’s article in Dialogue).
Generation from natural gas plants cost about $35 in 2009 and
2010 in Texas.
If the “premium” is viewed as a CO2 reduction strategy, its cost is
about $116 per metric ton. But carbon offsets are available in
the range of $5 to $30.
18
Lessons Learned


The development of renewable energy (at least, wind power)
can be achieved in a competitive electricity market if goals and
a REC program are imposed on the market. A favorable
business climate and tax credits help.
When wind generation reached about 5% of total annual
generation, impacts on system operations became pronounced.





Strange price patterns
Transmission congestion
Increased need for operating reserves
Changes in system operations
Despite the higher costs, the state’s development of its wind
and solar power resources is generally regarded as successful.
19
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