The coming summer may raise the temperature on debates around electricity generation capacity and reliability issues in Texas, regulators and energy experts said at a Thursday morning breakfast at IHS CERAWeek 2013.
“There is an inherent tension between efficiency and reliability,” said Donna Nelson, chair of the Texas Public Utility Commission. “It’s there and it will always be there. One of our fundamental premises is that we need a reliable system. I think I have failed in my job if we have rolling outages as a way of addressing our problem.”
Government and utility officials agree that ensuring sufficient capacity in the system at peak times is a challenge, further complicated by a growing population in Texas and low natural gas prices.
The state relies on wholesale electricity prices to attract investment in new generation facilities, but concern has grown in Texas in the recent years that the generation capacity may not be sufficient to meet growing needs at peak times, especially in a hot summer like that of 2011.
“You only get paid when you run,” said Thad Hill, chief operating officer and president of Calpine Corp., pointing out the challenges of bringing on new generation facilities that will only be used in extreme conditions. “We have a model where there are units that are never going to get paid. The wholesale market is very competitive and prices are very low until we end up in scarcity.”
Another option for Texas would be a capacity market, in which the government would decide when the supply of electricity is sufficient to meet reliability needs, and pay generators for the needed reserve capacity, rather than relying on market forces.
Steven Murray, president Direct Energy Residential, said retail residential customers believe that the price of electricity is constant, even though new laws soon will allow wholesale prices to climb as high as $9,000 per megawatt-hour at peak times. Regulators raised the cap as an incentive for generators to add capacity.
Murray said that there is sufficient capacity in the system, but that residential customers need more information in order to modify their behavior to use less electricity at peak times. He said average use dropped 10 percent in areas where customers have smart meter systems that let them monitor their power use.
Low natural gas prices have further decreased the profitability of building new generation, Nelson said, since the structure of Texas’ deregulated power market essentially means gas sets the price of electricity. The average wholesale price for electricity fell more than 50 percent in the last year, chasing away investors.