Exploring the Implications of ERCOT’s Shift from Scarcity Pricing to RUCs

Over the past twenty years, state and federal legislators have been working to design (and re-design) a competitive power market where adequate long-term generation is procured in order to make sure grid operations are reliable in the short term. Today, our industry is at a pivotal point in deciding how to promote competitive auctions and coordinated planning between the generation resources needed to meet balancing requirements and the resources demanded for climate goals. 

The debate over how to handle the resource adequacy problem remains increasingly complex and pronounced. How can the markets adopt a resource mix that meets both reliability targets and climate standards? Can supply and demand handle the risks from a scarcity surcharge? The question remains: Can we rely on price formation in itself to establish the ideal resource mix? 

In the case of Texas’ state-regulated, laissez-faire market, ERCOT, system operators lean more heavily on price signals and much less on capacity. Since winter storm Uri sent prices skyrocketing, ERCOT has been transitioning to more conservative measures. As such, we’ve seen less reliance on price signals and a shift back toward regulatory measures in the form of reliability unit commitment (RUC) events. 

When RUC units are called upon, there’s a surge in response capacity, which tends to keep real-time prices low. However, the increase in RUCs to maintain resource adequacy is distorting price signals in ERCOT, and raising costs for market participants and consumers.

Additionally, there is the opportunity cost of non-RUC units missing out on the scarcity rents: the revenue units capture in excess of their marginal generation cost, which valuably feeds into their fixed cost recovery stream.

As of late, RUC events have become ERCOT’s preferred method for controlling capacity shortages during extreme temperatures. However, there is an external cost on the market. RUCs were implemented for emergency use, and bringing them on daily is creating significant costs in the form of uplift. 

To provide greater analysis on the RUC events, this paper utilizes an array of Yes Energy's ERCOT market data to create a visual RUC analysis, based on Yes Energy’s DataSignals Cloud service. With access to Yes Energy’s premium data service, users can hone in on how ERCOT’s RUC process is reshaping their free market this summer.