A new study by the Brattle Group was recently released by the Public utility Commission (PUC). The goal of the study was to estimate the economically optimal reserve margin for ERCOT’s (Electric Reliability Council of Texas) wholesale electric market.
The study found that the minimum system cost occurs at a reserve margin of 10.2%. This economically optimal reserve margin is below the 14.1% reserve margin needed to meet the traditional 1-in-10 loss of load event target the state currently aims for.
According to the study, “Findings suggest that the current market design will support sufficient reserve margins from an economic perspective” but at the same time, assuming $3.2 billion/year in capacity payments and $2.8 billion/year reduction in energy-market costs, the net increase in customer costs under a capacity market design would only be around 1%.
The Brattle report in its entirety is attached below.