Knowledge Problem

Michael Giberson

The Wall Street Journal published a lengthy article by Russel Gold on the behind-the-scenes struggle over cost allocation and performance obligations between wind power producers and conventional generators.  Tension over how variable resources participate in markets have been simmering for years, but wind power and other intermittent resources have been too small to worry too much about.  Now wind power is edging into the big leagues and the rules begin to matter (e.g.: “Big blow boosts Texas wind record“).  The article focuses on the ERCOT power market in Texas, where the action is hottest, but the same kinds of issues arise in other markets.

From the WSJ:

Many environmental groups talk of how wind and relatively clean-burning natural gas can partner to displace dirtier coal, creating a path to power the U.S. while releasing fewer greenhouse gases. A bitter fuel fight in Texas points to a different future: one in which gas and wind are foes.

The gas and wind factions have been clashing over the state’s operating rules for the past several months. The gas people say the playing field is tilted in wind’s favor; wind accuses gas of trying to snuff out the nascent wind energy sector.

[...]

At the heart of the battle is a fight over the vicissitudes of wind itself. The wind industry argues that since it can’t control when the wind blows, it shouldn’t be held to the same rules that require everyone else to make payments when they fail to deliver promised power. The natural-gas generators say everyone should operate under the same rules, and lament that wind’s success is merely coming at the expense of another relatively clean energy source.

[...]

One grievance: Coal, nuclear and gas operators must pay for their own backup if an operational or maintenance problem prevents them from delivering power as promised. But if wind generators fail to deliver promised power because the wind doesn’t blow, the cost of backing up wind power companies is spread among all the generators, state officials say. This puts an unfair burden on nonwind generators, says the gas faction.

For a closer look at the behind-the-scenes battle, try searching the ERCOT website for information about “voltage ride through” requirements for wind generators or the actions of (and reactions to) the Wind Cost Allocation Task Force.  If you drill down beyond the meeting schedules and status reports, all the way down to the presentations, reports, and comments filed by individual parties, things can get a little sharp.

For example, this recent presentation opposing recommendations of the Wind Cost Allocation Task Force uses terms like “fundamentally flawed,” “unfortunate squandering of resources,” “solutions … in search of a largely non-existent problem,” “arbitrary,” “would thwart public policy goals of the State of Texas.” Thems fighting words, and that’s just from page 2 of a 15 page presentation. On page 8, there is the suggestion of “serious anti-trust concerns.”

One of the page 2 phrases is right on target: “not consistent with principles of sound market design.” Unfortunately it isn’t until p. 13 that any market design principles actually get raised by the presenter.  Not surprisingly, the presentation itself seems a bit cavalier in its own use of “the principles of sound market design,” invoking principle when principle is convenient and pleading overall policy benefits when principles are inconvenient. But the principles mentioned are a start: cost causation, non-discrimination, and something about allocating costs to motivate “proper market behavior.”

The way forward, in ERCOT’s committees and in other power market design efforts, is in the systematic working out of principles of sound market design to be invoked in these kinds of discussions.