Introduction
The previous section gave an overview of how supply and demand constantly change to produce localized power prices for each time and location. Over the next few decades, meeting the increasing energy demand will require a multitude of power generation technologies, but a large part of it is expected to be met with renewable sources as the technology matures and policy makers set carbon reduction targets. In Texas, however, the future has come early, as strong and relatively consistent wind patterns already make renewables the most economic choice for generation build, and provide a glimpse into the coming benefits and challenges associated with increased renewable penetration. The Texas grid operator, ERCOT, is tasked with dispatching the appropriate units to meet the instantaneous demand. This project will detail the challenges associated with this dispatching as more of the generation is composed of less predictable wind energy. Dealing with this unpredictability will be crucial to further integration of renewables into our national grid.
Supply and Demand Recap
The mix of available generation changes significantly through the year, as units try to go into maintenance during periods they are less likely to be dispatched. Below is a reminder of the seasonality of supply and demand in Texas:
The difference between the available generation and the peak load each day is the surplus capacity, or in other words, how close the demand is away from the top of the stack. If surplus reaches 0 MW, blackouts occur. Thus it follows that there is a direct relationship between the day’s average LMP and the surplus level, with many of the extreme outcomes occurring in the lowest surplus conditions.
Surplus vs power price
The blue local-average line shows the inflection point is around 3000 MW, which is what ERCOT classifies as an emergency situation, and spikes in prices are much more likely starting around 5000 MW. Since there were insufficient generation resources in Summer 2011, most of these very high priced days occurred at the lowest surplus levels. For the days with sufficient resources, the distribution of prices looks much more similar to the other years’. Much of the remaining variation across years is due to changes in fuel prices.
While many of the high priced days are clearly due to low surplus conditions, there are a handful of days each year with extreme prices despite surplus levels appearing sufficient (blue points above). To examine this at a more granular level, we can go to the hourly data, and measure the frequency at which there is a pop in prices. Here I define a pop as a price above the 98 %ile of the distribution evaluated for each hour (so for example, the threshold is $49 for 8am and $180 for 2pm) to account for the variation in load levels through the day. Then I count the hourly observations of pops in each year, and classify by “safeness” of the hourly surplus. An hour with 7000 MW of excess capacity should be fairly safe from volatility during normal operating conditions.
Number of Hours with Price Spikes per Year, Faceted by Surplus Level
Left side: low surplus conditions, price spikes expected
Right side: safe surplus conditions, price spikes not expected
You can see that 2011 had many low surplus pops, but very few high surplus pops. However, over the years, these price spikes during what should be safe conditions have steadily increased. What could account for this increase?
ERCOT’s Changing Generation Sources
One of the largest changes to ERCOT over the last 5 years has been an extraordinary build out of wind capacity. As the technology has matured, wind units have become more and more economically feasible, especially in a place like Texas with open space, high electricity prices, and strong winds off the Gulf. Within the last 2 years, it is now generally accepted to be cheaper to add capacity with wind rather than conventional fuels, even without any subsidies.
This dramatic change in the makeup of ERCOT’s energy fleet has had a snowballing effect on the power market. In the short term, adding gigawatts of generation with $0 marginal cost pushed down electricity prices during the lower load hours, which had traditionally been served by nuclear and coal units. By pushing these units up the stack, many coal plants don’t run enough hours of the year to justify their overhead. This is starting to play out in a spectacular fashion, as a record number of generators declare retirement this year.
Removing these units from the dispatch fleet has significant implications for the grid operation. While wind power has pushed the average electricity price down, it’s also added a huge amount of volatility to the dispatch optimization, as wind speeds (and weather patterns generally) are notoriously difficult to forecast even a few hours ahead. During these periods of dramatic under production from wind units, the very units meant to deal with short term fluctuations have been pushed out of business, forcing the dispatchers to reach further up the stack for the less economical gas and diesel units more frequently. This sequence of conditions can help explain why we’ve seen more random pops in hourly electricity prices during high surplus conditions, as wind generation suddenly drops during key load ramping hours and dispatchers scramble for replacement generation.
Conclusions and a Path Forward
Of course, there are many favorable consequences from coal displacement with wind generation. We’ve eliminated some of the dirtiest and inefficient plants in the country and decreased demand for dangerous coal mining operations. Averaged across a month or year, the end user’s electricity bills are going down, at least in Texas with access to favorable wind. Clearly, if we want to live in a future with a sustainable planet, we need to reduce our reliance on these fossil fuel generators, especially as billions of people across the world join the modern economy in the next few decades. To this end, ERCOT provides a great case study as wind and solar technology becomes more feasible in more regions of the country and the world. The instantaneous nature of electricity and the inherent unpredictability of weather pose unique challenges to power generation, and these challenges will only increase in complexity as renewable penetration increases.
There are some signs of progress on this front. For example, a “smart-grid” that can self monitor micro and macro scale performance and automatically reconfigure resources will be vital to real-time operation in volatile weather conditions. In addition, these systems need to anticipate areas of potential weakness, as there are many examples of power or gas lines failing due to poor monitoring and maintenance. A better monitored system can be smaller and more flexible, providing efficiency gains to offset the high capital required to implement these upgrades. I see myself contributing at the heart of these solutions, as so much will depend on strong data analytics and robust algorithms to succeed in shaping a more sustainable society of our future while avoiding ERCOT’s growing pains on a global scale.