Lynne Kiesling and Vernon Smith on Texas electricity
Lynne Kiesling and Vernon Smith on Texas electricity – Marginal REVOLUTION
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How can the resilience of ERCOT’s grid be improved without resorting to costly regulatory mandates that may or may not yield benefits? ERCOT could implement clear market rules requiring natural gas generators to have firm supply contracts in order to be certified as an eligible resource for emergency conditions. Plant owners have incentives to do so because they would have market access under high-price conditions where their performance would more than compensate them for the insurance cost of fuel security.
ERCOT can also take advantage of Texas’ deregulated retail market structure to incentivize more customers to reduce consumption in return for bill savings, creating demand flexibility. Using digital devices and automation to send prices to residential devices would allow consumers to reduce their demand during extreme stress and high prices. Similarly, the Texas market design is well-suited to increasing battery storage, which has been made increasingly economical due to innovation. Batteries enable households to choose to self-insure against outage risk, and when interconnected in their local distribution grid, they can serve as resources to provide energy or grid services to others.