Energy Alliance Policy Director Bill Peacock discussed the state of the modern energy market in an interview with the Austin Journal.
"While today’s market still bears the name ‘energy-only,’ regulators have done everything possible to turn it into a capacity market through continuous intervention in the market, spurred on by the actions of Texas politicians," Peacock said. "Particularly, regulators have sought to replace the use of market prices to maintain adequacy with regulatory pricing through the operating reserve demand curve (ORDC) and ancillary services (regulation service – up, regulation service – down, responsive reserve service and non-spinning reserve service). Yet the E3 report treats the current market as a fully functional 'energy-only' market. All of its analyses of the possible proposed uses the current market design as a baseline."
Peacock said E3 made no effort to model what a true energy-only market would look like.
"In fact, it included in the 'baseline' scenario changes the PUC made to the market in January 2022, all of which added significant costs to the market and moved it even further away from the energy-only model. Thus all of the reliability and cost estimates made by E3 in the report are based on the current energy-capacity hybrid model currently in place," he said. "Texas politicians, the public and the media have no model of how an electric grid ruled by market prices, rather than 'market-based' government interventions, would compare to the scenarios offered by E3."
Peacock conducts research for the Energy Alliance on energy-related policy, according to his official bio. Such areas include federal and state regulation of electricity markets, the Texas electricity market, renewable energy, federal, state and local energy subsidies and the relationship between free markets, regulatory policy and economic prosperity.
Energy and Environmental Economics Inc. (E3) is a San Francisco-based energy consulting firm. The Public Utility Commission of Texas agreed to pay a $364,000 contract with the firm to execute a review of the proposals, including its own, that were submitted to redesign the state's energy market. Texas Public Policy Foundation policy director Brent Bennett has publicly asked why the Public Utility Commission is conducting business in this way, as he was also noted as saying that E3 had been favoring its own idea despite it working against what Texas market energy markets really need.
In 2021, Texas Gov. Greg Abbott wrote a formal letter directing the PUC to take immediate action to improve the reliability of the state's power grid. Actions requested to be immediately taken include the following: Streamline incentives within the ERCOT market to foster the development and maintenance of adequate and reliable sources of power, like natural gas, coal and nuclear power; allocate reliability costs to generation resources that cannot guarantee their own availability, such as wind or solar power; Instruct ERCOT to establish a maintenance schedule for natural gas, coal, nuclear and other non-renewable electricity generators to ensure that there is always an adequate supply of power on the grid to maintain reliable electric service for all Texans; and order ERCOT to accelerate the development of transmission projects that increase connectivity between existing or new dispatchable generation plants and areas of need.
According to Life: Powered, the problems currently facing the Texas energy grid have been predictable due to both an overinvestment in unreliable generation and an underinvestment in reliability measures. Over $60 billion were invested in solar and wind energy generation since 2011, and those energy sources only produced 1 gigawatt (GW) of power during Winter Storm Uri in 2021. Any measures taken to protect wind and solar energy are counterproductive if they aren't done in sync with market reforms.
On Nov. 10, the PUC released a report written by E3, which performed a quantitative and qualitative review on a wide range of proposed market designs. The report provides an independent assessment of potential long-term market design reform options meant to promote the supply of dispatchable generation and focus on reliability as outlined in Phase 2 of the blueprint published by the PUC in December. Under the direction of the Commission, the E3 and Astrape Consulting teams developed and analyzed six specific market design options and compared the impacts of each against a status quo energy-only market design.