# Texas Energy System 101 - The Energy Academy: ERCOT

https://www.youtube.com/watch?v=XI_jBuTAtB0

[00:00] Welcome to the Energy Academy, a series of educational videos designed to help you get to grips with power markets in Texas.
[00:05] I'm Brand Fillian, OT Market Lead at Moto Energy.
[00:08] In this season, we'll be diving into how markets operate in UROT, the Electric Reliability Council of Texas.
[00:15] [Music]
[00:19] We'll be looking specifically at market design and operation, basically how power gets from generators to consumers, how those generators make money, and all the steps in between.
[00:30] So, what will you actually learn this season?
[00:32] Well, we'll explore what UROT is and its place within North America's power system, the different organizations that UROT interacts with, and how they fit together.
[00:40] All the ways that power is bought and sold in UROT, from years ahead of delivery all the way up to real time.
[00:46] How UROT works as a nodal power market, in other words, how and why prices differ from location to location and the factors that go into determining these prices.
[00:54] The ways in which UROT ensures that supply and demand of power are balanced in Texas at all times.
[01:00] Much, much more if you're completely new to power markets and you need a foundational introduction to the basics, i.e., what we mean by generation, demand, distribution, transmission, the marginal cost of electricity, etc., then you should go back and check out the first two seasons of our other Energy Academy videos.
[01:16] So if you're ready, let's dive in.
[01:19] In the first episode, we'll explore ERCOT's unique place within North America's wider electricity system.
[01:22] I'll see you there.
[01:25] Hey everyone, welcome to the first episode of the Energy Academy by Moto Energy.
[01:30] Before we dive into the details of how ERCOT operates, it's worth thinking about how it fits into the larger North American electricity system as a whole.
[01:38] [Music]
[01:44] Picture the power grid as a vast and intricate web connecting power plants to homes and businesses via transmission lines.
[01:49] When you turn your lights on, you're tapping into a diverse array of power sources.
[01:53] These range from traditional facilities like coal and natural gas plants to newer forms of technology like wind and solar.
[02:01] Farms however the integration of wind and solar brings both opportunities and challenges.
[02:05] Wind and solar power intermittent meaning that they can't be relied upon 24/7 and managing this requires sophisticated systems.
[02:14] Because North America is so vast the power system is actually made up of a number of smaller Regional power markets.
[02:18] These are operated by independent system operators or Regional transmission organizations ISO to cover single States or smaller regions while RTO tend to cover larger multi-state or multi-province areas.
[02:34] There are also some regions that aren't covered by isos and RTO but we don't need to worry about these for now.
[02:40] For almost all regions that are covered by isos and RTO their market operations are overseen by the Federal Energy Regulatory Commission or FK.
[02:48] FK is an independent agency of the US government whose goal is to oversee the interstate transmission of electricity and natural gas.
[02:56] However isos and RTO are individually responsible for coordinating and operating the power.
[03:02] Grids within their respective regions as of early 2024, there are nine ISOs and RTOs in North America.
[03:09] ERCOT is an ISO, and crucially, it's the only one of the US-based system operators that doesn't fall under FERC jurisdiction.
[03:16] This is because ERCOT has no synchronous AC ties to the Eastern and Western interconnections.
[03:21] Instead, ERCOT is overseen by the Public Utility Commission of Texas, or the PUCT.
[03:25] The PUCT has final say on changes to ERCOT's rules and protocols.
[03:33] But both ERCOT and the PUCT have to work within the frameworks and boundaries of the Texas state legislature.
[03:42] In the next episode, we'll talk about ERCOT's goals and responsibilities.
[03:45] I'll see you there.
[03:47] Welcome back to the Energy Academy.
[03:50] In this episode, we'll explore ERCOT's responsibilities in overseeing the flow of power in Texas.
[03:56] [Music]
[04:02] ERCOT, the Electric Reliability Council of Texas.
[04:04] Texas is an independent nonprofit organization.
[04:06] It conducts a flow of electricity in Texas but doesn't own any infrastructure.
[04:10] ERCOT oversees the delivery of around 90% of all electricity used by people and businesses in Texas, serving over 26 million customers.
[04:20] Covering the vast expanse from the wind and sun-rich plains of West Texas to the bustling urban centers of Houston, Dallas, and Austin, ERCOT manages a geographically diverse and constantly evolving energy landscape.
[04:31] And in fact, Texas has the most utility-scale renewable generation of any state in the US.
[04:38] ERCOT aims to provide a reliable supply of power.
[04:42] This means balancing supply and demand in real time, keeping grid frequency at around 60 Hz, and ensuring that transmission infrastructure does not become overloaded.
[04:52] To do this at the lowest cost to the consumer, ERCOT runs a competitive power market.
[04:57] Generators offer to supply electricity, and prices are determined through a market-clearing process.
[05:03] Also, ERCOT is a nodal market.
[05:07] Just means that prices are location specific.
[05:08] They reflect the value of providing or consuming electricity at different places or nodes on the grid.
[05:15] This allows ERCOT to procure power from the most cost-effective sources and it incentivizes new generators to be constructed in places where they're needed.
[05:21] ERCOT also manages the transmission planning process and the generation interconnection process.
[05:29] This ensures that the grid is reliable and able to meet future demands.
[05:34] In this series we'll focus specifically on how ERCOT's power markets work.
[05:38] We'll cover how electricity is bought and sold and how ERCOT manages its markets to reliably deliver power.
[05:44] But who are the various participants involved in this process?
[05:46] In the next episode we'll explore exactly that.
[05:48] See you there.
[05:50] Welcome back to the Energy Academy.
[05:51] Here we'll introduce some of the different types of market participants in ERCOT to get an idea of how they interact with one another.
[06:00] [Music]
[06:05] ERCOT oversees the flow of electricity.
[06:07] Within its boundaries it also operates various markets through which power is bought and sold.
[06:11] It also oversees the planning and operations of transmission infrastructure, the wires and towers that carry power from one location to another.
[06:21] But these are actually owned and operated by transmission service providers, or TSPs.
[06:24] TSPs provide the link between generators on one side, which are owned by resource entities or REs, and on the other side, the distribution network and eventually consumers.
[06:35] Resource entities can own either generation resources, which generate power, or load resources, which import power.
[06:42] In order for resources to buy and sell electricity in ERCOT's markets, they must be represented by qualified scheduling entities, or QSEs.
[06:50] QSEs are the middlemen between resource entities and ERCOT.
[06:54] They submit bids and offers on behalf of resources, they inform ERCOT of a resource's operations, and they financially settle with both ERCOT and the resource entity for any power bought or sold.
[07:09] Sold, so we know roughly how electricity makes its way to consumers in ERCOT.
[07:14] But who do consumers actually pay for that electricity?
[07:15] Consumers of power, like homes and businesses, are supplied by organizations known as load serving entities, or LSEs.
[07:22] In many parts of the state, consumers have a competitive choice of their electricity provider.
[07:26] But in some parts of the state, there is no competitive retail market, and consumers are served by a specific type of LSE called a non-opt-in entity.
[07:37] All LSEs purchase power either from QSEs on ERCOT day-ahead in real-time wholesale markets or via longer-term bilateral contracts with specific resource entities.
[07:47] And homes and businesses then pay LSEs for the electricity that they consume.
[07:53] In ERCOT, the majority of power is initially contracted through those long-term agreements.
[07:58] So how do they work?
[08:00] We'll dive into that in the next episode.
[08:02] I'll see you there.
[08:02] Welcome to another episode of the Energy Academy.
[08:06] Today, we'll look at how longer-term contracts work in.
[08:14] Ott cross World long-term power contracts form the foundation of the power system for generators.
[08:18] Long-term power contracts provide a reliable revenue stream by reducing the exposure to volatility in short-term market prices.
[08:26] And this reliability allows the owner of generators to secure financing for new projects.
[08:31] On the consumer side, long-term contracts provide stable and predictable power prices.
[08:35] An OT has a unique characteristic that makes long-term power contracts particularly important: it does not have a capacity market.
[08:44] Say a new natural gas plant is proposed in response to increasing demand.
[08:48] In a capacity market, this plant might receive payments from the system operator or from the government for its potential to generate electricity even when it's not actually doing so.
[08:57] In urot, however, a plant is only paid for the energy it actually generates, except in the case of some an services (more on those later).
[09:07] And if you want to know more about how capacity markets work in practice, head to season 3 of the energy Academy.
[09:14] Great Britain, because there's no capacity market in Ott ls's, play a crucial role.
[09:18] They enter into bilateral agreements with generators, making long-term commitments to purchase electricity at an agreed price.
[09:26] So how prevalent are these types of to transactions?
[09:29] Well, the majority of power in OT is initially contracted through these long-term agreements.
[09:36] One example is power purchase agreements, or PPAs.
[09:39] These involve generation resources like wind and solar selling power to buyers like LS at an agreed price for specified durations.
[09:50] But all that is being agreed is the price that the buyer will pay the seller and the amount of electricity that the buyer will actually receive.
[09:59] The buyer won't necessarily receive that physical power directly from the seller.
[10:04] This is because the flow of power across large areas is complex.
[10:06] There isn't always a direct transmission pathway between the buyer and the seller and because both the flow of power and the...
[10:14] Real-time balancing of the system are very complex.
[10:16] Power prices at the time of delivery can be very volatile.
[10:20] Because of this, KOT offers financial risk management tools known as congestion revenue rights, or CRRs.
[10:28] We'll come back to the concept of congestion later in the series.
[10:30] Parties with long-term agreements often purchase CRRs.
[10:34] This is to hedge against any future congestion that might expose them to unwanted price volatility.
[10:38] But CRRs can also be used to speculate on price variation across the system, and this variation happens locationally.
[10:46] In the next two episodes, we'll examine how locational marginal prices are formed in UROT.
[10:52] See you there.
[10:52] Welcome back to the Energy Academy.
[10:54] Over the next couple of episodes, we'll be looking at how prices are determined in AA.
[11:00] [Music]
[11:05] As we mentioned previously, UROT is a nodal power market.
[11:07] This means that the price of power differs across various locations, and these locations are known.
[11:14] As nodes, the different prices at these nodes are known as locational marginal prices, or LMPs.
[11:21] LMPs simply reflect the value of producing an additional unit of power at a given node.
[11:30] As of early 2024, there are around 177,000 nodes in UROT, and just under 900 of these have a unique LMP.
[11:38] And these nodes with a unique LMP are known as settlement points.
[11:42] Most settlement points represent a single resource in the form of a resource node, something like a battery energy storage system, a wind farm, a combined cycle gas generator, etc.
[11:54] Basically, a transmission-connected resource that participates in wholesale markets and can respond to dispatch instructions.
[12:01] Some settlement points don't just represent a single node.
[12:05] Instead, they are aggregations of nodes called load zones or trading hubs.
[12:10] Every 5 minutes, UROT produces a unique LMP for each of them, but how are...
[12:15] These prices formed well the main component of prices across OT is something called the system Lambda.
[12:22] System Lambda is just the cost of procuring the next cheapest unit of energy across the entire system.
[12:30] So say that demand is 50 gaws across the entire State.
[12:33] The sun is shining, the wind is blowing, and demand is being met by a combination of wind and solar, nuclear, and a bit of coal generation on top.
[12:41] And the most expensive generator being used in this case, a coal plant, determines the system Lambda.
[12:48] Now imagine the sun sets and solar generation drops off, and at the same time demand rises slightly.
[12:55] This means that urot may now need to use slightly more expensive generation in order to meet the demand.
[12:59] So OT turns up some natural gas plants, and because natural gas is generally a more expensive form of generation, system Lambda increases.
[13:09] Now this scenario is a crazy oversimplification.
[13:11] In fact, determining system Lambda is a much more complex and.
[13:15] Nuanced process in this, it takes into account factors such as resource ramp rates, system frequency, and the bid and offer curves of individual resources.
[13:26] System Lambda is simply the first component in determining the LMP at every settlement point.
[13:32] The second is transmission congestion.
[13:35] In the next episode, we'll discuss exactly how the cost of alleviating congestion is factored into LMPs.
[13:39] See you there.
[13:42] Hey everybody, welcome to part two of our Energy Academy breakdown of locational marginal price formation.
[13:47] In this part, we'll focus on how congestion impacts prices in our [Music] cop.
[13:56] Congestion is when a part of the transmission network is either overloaded or is at risk of becoming overloaded.
[14:04] Basically, it happens when there's more power being transferred between two areas than the transmission infrastructure can actually handle.
[14:12] To protect equipment, OT monitors the power flowing across all elements in.
[14:16] The transmission network in UROT congestion is the cause of price disparity between settlement points.
[14:22] When congestion occurs, UROT needs to take action.
[14:24] Usually, this means redispatching generation to reduce the amount of power flowing across the congested part of the network.
[14:33] If there's no congestion on the system, all locational marginal prices, or LMPs, will simply be the same as the system Lambda, i.e., the cost of dispatching the next cheapest available generation across the system.
[14:47] However, when there is congestion, UROT factors it into every LMP across the system, and here's how.
[14:56] To begin, every congestion constraint has an import side and an export side.
[15:00] The constraint occurs because too much power is flowing from the export side to the import side.
[15:03] For any constraint, every generation or load resource in UROT has what is known as a shift factor.
[15:10] This shift factor represents how much impact that resource has on the constraint.
[15:15] For example, imagine a generator close to the.
[15:17] Export side of a constraint, it might have a shift factor of 0.5 or 50%.
[15:26] If it increases its output by 10 megawatt, the flow across the constraint would increase by 5 megawatt.
[15:36] Now, if it decreases its output by 10 megawatt, the flow across the constraint would decrease by 5 megawatt.
[15:46] Now imagine a generator on the import side of the constraint.
[15:50] This generator might have a shift factor of negative 0.5.
[15:53] If it increases its output by 10 megawatt, the flow across the constraint would now decrease by 5 megawatt.
[16:04] When solving a constraint, UROT looks at how severe it is, how much generation will need to be redispatched, and how expensive it will be to redispatch that generation based on their offer curves using all of this information.
[16:19] Urot comes up with a shadow price for the constraint.
[16:20] This is simply the cost on a per megawatt basis of redispatching generation to resolve it.
[16:28] Once there's a shadow price for every constraint on the system, Urot can then determine LMPs.
[16:32] Imagine for a moment that there's just a single congestion constraint in all of OT.
[16:36] If a resource has no impact on the flow across that constraint, which tends to happen if it's located far from the congestion, then its shift factor will actually just be zero.
[16:45] This means that its LMP will be the same as the system Lambda for that operating interval.
[16:52] For the vast majority of resources across OT, this tends to be the case for a given constraint.
[16:56] To illustrate actually calculating LMPs, let's start by saying that the system Lambda is $200 per megawatt hour.
[17:05] This means that those resources with 0% shift factors will also have LMPs of $200 per megawatt hour.
[17:10] Now let's go back to the generator that we introduced before near the export side of the constraint, and remember that it has a shift factor of.
[17:22] 0.5 its LMP would be calculated by multiplying together the shadow price of the constraint, let's say this is $100 per megawatt, and the shift factor of the generator and then subtracting that entire value from the system Lambda.
[17:35] Therefore, at this settlement point, the price is lower than the system Lambda with a value of $150 per megawatt hour.
[17:48] Meanwhile, let's now think about our other generator that is near to the import side of the congestion with its shift factor of 0.5.
[17:57] When we run through this same calculation, we find that its price is actually higher than the system Lambda with a value of $250 per megawatt hour.
[18:10] When there are multiple constraints at the same time, ERCOT determines the LMPs by repeating the same calculation across every constraint and for every settlement point.
[18:20] It then finds the sum of all of.
[18:22] These values at every settlement point and then subtracts that value from the system Lambda.
[18:33] And there you have it; this is how OT determines locational marginal prices.
[18:37] There's still one more factor that occasionally impacts price formation in UROT, something called price adders.
[18:44] However, we'll come back to these in a few episodes once we've introduced OT's wholesale market operations.
[18:47] See you next time.
[18:49] Welcome back to the Energy Academy.
[18:52] Now we know how LMPs are calculated, so let's take a look at how KOT's wholesale markets work.
[18:57] [Music]
[19:03] Let's start with the day-ahead market.
[19:05] Participants submit bids and offers for power to be delivered the next operating day.
[19:11] QSEs representing generators submit offer curves to sell certain amounts of power at specified prices, and LSEs and load resources submit bids detailing the price and quantity of.
[19:23] Power that they want to buy, the price of power each settlement point is then determined by the intersection of these supply and demand curves.
[19:34] This is an oversimplification, and there are other factors that go into determining prices in the day ahead market.
[19:40] Some of these include the startup costs and startup times of individual resources, any other services that resources might be offering to provide, and the physical limits of the transmission network.
[19:49] Let's look at an example of an offer curve.
[19:52] This gas plant is willing to supply 100 megawatt if its LMP is between $30 and $40 per megawatt hour.
[20:00] But how do the timings of this market work?
[20:02] Well, the day ahead market operates at an hourly granularity.
[20:07] Any resource that is accepted to dispatch in the day ahead market must do so continuously for the entire hour in which its bid or offer was accepted.
[20:15] Resources can submit bids and offers into the day ahead market between 6:00 a.m. and 10:00 a.m. of the day before the operating day.
[20:22] So let's say that the gas plant that
[20:25] we mentioned before is accepted to
[20:26] provide 100 megawatt between 3 p.m. and
[20:29] 400 p.m. the following operating
[20:32] day it is then financially obligated to
[20:34] generate 100 megawatts for the duration
[20:36] of that operating
[20:37] hour in the day ahead Market
[20:40] participants can offer to provide energy
[20:42] meaning the generation of electricity to
[20:44] serve demand I.E the process that we've
[20:46] talked about throughout this series so
[20:47] far as well as ancillary Services we'll
[20:50] come back to ancillary service in more
[20:52] detail in the next episode participants
[20:55] looking to provide both will submit bid
[20:57] and offer curves for energy and
[20:58] ancillary Services
[21:01] simultaneously after 10: a.m. urot
[21:04] executes for each hour of the following
[21:06] operating day an LMP is generated at
[21:09] each settlement
[21:12] Point meanwhile for every operating hour
[21:14] a systemwide clearing price is
[21:16] determined for each ancillary Service
[21:18] Awards for energy and ancillary services
[21:21] are co-optimized to ensure the least
[21:23] cost across the
[21:25] system once the day Head Market has
[21:27] closed and awards to made these awards
[21:29] are then communicated to resources via
[21:31] their
[21:34] qses qses then update their operating
[21:36] plans for those respective
[21:39] resources if OT thinks it might need
[21:41] extra generation in the next operating
[21:43] day it can procure it via a process
[21:45] called reliability unit commitment or
[21:48] Ruck from around 2:30 p.m. onwards Ruck
[21:51] runs every
[21:53] hour if urot believes it may not have
[21:55] enough Supply in the event of forecast
[21:57] airs it can use Ruck to commit a
[21:59] generator to be online in the next
[22:01] operating day this just means
[22:03] instructing a unit to operate during
[22:05] hours it wasn't previously due to be
[22:07] online for and paying it to do so these
[22:10] will typically be thermal generators
[22:12] like coal or natural gas plants with
[22:14] long startup times and large
[22:17] capacities and that's how the timeline
[22:19] of day Ahad operations plays out we'll
[22:22] take a quick detour now to explore how
[22:23] ot's ancillary Services work and then
[22:25] we'll dive into the real-time Market see
[22:28] you then
[22:29] welcome back to the energy Academy in
[22:31] this episode we'll explore how ancillary
[22:33] Services
[22:34] [Music]
[22:38] work ot's ancillary Services serve three
[22:42] main functions the first of these is to
[22:44] manage minor deviations in
[22:46] frequency the frequency of the OT system
[22:48] is 60 HZ IF frequency Strays too far
[22:52] from this value lights turn off
[22:53] equipment gets damaged bad things can
[22:55] happen Etc so OT makes small adjustments
[22:59] to the output of some resources to
[23:00] always keep frequency as near to 60 HZ
[23:02] as possible the second main function is
[23:04] to help quickly recover frequency back
[23:06] towards 60 HZ in the event of a
[23:08] significant
[23:10] deviation typically these more
[23:11] significant deviations occur when a
[23:13] large amount of generation trips offline
[23:16] lastly urot can use some of its
[23:17] ancillary services to provide fast
[23:19] responding capacity when the system
[23:21] needs additional Supply to meet demand
[23:23] there are four ancillary Services used
[23:25] to manage these issues they are
[23:27] regulation responsive Reserve service or
[23:30] RRS the OT contingency reserve service
[23:33] or ecrs and the non-spinning reserve
[23:35] service commonly referred to as
[23:38] non-spin let's take a look at each of
[23:40] these regulation manages those small
[23:43] deviations in frequency that we talked
[23:44] about before when frequency is just
[23:46] above or below 60
[23:49] HZ therefore it is split into regulation
[23:52] up and regulation down the regulation
[23:54] service is automatically deployed as
[23:56] frequency moves further away from 6
[23:59] Herz fast acting resources that can both
[24:02] Import and Export power such as battery
[24:05] energy storage systems are particularly
[24:07] well suited to provide this
[24:14] service RRS and ecrs are used to respond
[24:18] to those significant frequency
[24:20] deviations when frequency drops below
[24:22] certain thresholds these Services kick
[24:24] in incrementally
[24:29] these Services alongside non-spin can be
[24:31] manually deployed to provide additional
[24:33] capacity during scarcity
[24:37] conditions before entering emergency
[24:39] conditions urot will deploy all
[24:41] ancillary services to provide additional
[24:43] capacity during those scarcity
[24:44] conditions so how does OT procure these
[24:48] services in the day ahead Market
[24:50] resources can elect to provide different
[24:52] volumes of different ancillary services
[24:54] at different prices just like with the
[24:56] energy offer curves we looked at earlier
[24:58] once kot has awarded its ancillary
[25:00] service responsibilities and day Ahad
[25:02] energy obligations preparations for
[25:04] real-time operations can begin see you
[25:07] next time hello again and welcome to the
[25:08] energy
[25:10] [Music]
[25:15] Academy because the supply and demand of
[25:17] electricity are never totally balanced
[25:19] settlement in urot needs to take place
[25:21] on a close to realtime basis after the
[25:24] results of the day Ahad Market have been
[25:25] posted generation and load resources in
[25:27] OT have until one hour before the start
[25:29] of a given operating hour to adjust
[25:31] their offer in big curves for what is
[25:33] known as the real-time
[25:36] Market in one sense the real-time Market
[25:38] is where the action happens the actual
[25:40] physical dispatch of generation and load
[25:42] resources to meet demand at the lowest
[25:45] cost dispatch occurs every 5 minutes
[25:48] through security constrained economic
[25:49] dispatch or sked sked is an algorithm
[25:52] that evaluates real-time bids and offers
[25:54] as well as grid constraints system
[25:56] frequency and forecast to changes in
[25:58] generation and demand in order to
[26:00] determine the most costeffective
[26:02] dispatch of
[26:07] resources with this information SK
[26:10] dispatches resources to meet projected
[26:12] demand at the next
[26:13] interval the cost of resolving
[26:16] transmission constraints is also
[26:17] factored into this which as we know
[26:19] causes the difference in prices between
[26:21] settlement points even though dispatch
[26:24] occurs every 5 minutes settlement
[26:26] actually happens on a 15-minute basis
[26:29] each 15-minute settlement period is
[26:31] divided into three 5-minute SC intervals
[26:34] the price for these settlement periods
[26:36] is just the mean of the prices for those
[26:37] three SK
[26:39] intervals but what actually happens
[26:41] within those 5-minute operating
[26:43] intervals every 5 minutes 247 365 OT
[26:47] initiates its state estimation
[26:50] process during State estimation urot
[26:52] receives data to determine the power
[26:54] Flows at each piece of transmission and
[26:56] generation infrastructure across the
[26:58] Entre Tire
[26:59] grid and the aggregated state of all of
[27:01] these power flows is known as the base
[27:04] case once it has a full view of how much
[27:07] power is Flowing where urot carries out
[27:09] contingency analysis contingencies are
[27:12] simply potential events that may cause
[27:13] transmission
[27:15] congestion and urot takes action to
[27:18] resolve these contingencies which often
[27:20] means redispatching generation and it
[27:22] does this through sked sked sends
[27:24] dispatch instructions or base points to
[27:26] resources and those resources then turn
[27:29] up or down balancing the system in the
[27:32] process now we know how urcap balances
[27:34] supply and demand in real
[27:37] time we've already looked at how lmps
[27:39] are calculated but there's actually one
[27:41] more component that can contribute to
[27:43] prices at any given time in the final
[27:45] episode we'll take a look at Price
[27:47] adders see you next time welcome to the
[27:50] final episode of the energy Academy
[27:52] earlier in the series we explored price
[27:54] formation in urot once urot determines
[27:57] both system Lambda and the cost of
[27:58] alleviating transmission congestion
[28:00] there's actually one more factor that
[28:02] plays into price
[28:04] [Music]
[28:09] formation these are called price adders
[28:11] there are two main forms of price adders
[28:13] the first is based on ot's reserves when
[28:16] we talk about system reserves we just
[28:18] mean all of the available power supply
[28:20] that isn't currently being
[28:22] used so if a generator comes offline
[28:25] unexpectedly or there's a sudden rise in
[28:27] system demand urot can use some of its
[28:32] reserves generally the market tends to
[28:34] determine that prices are higher when
[28:35] system reserves are lower but this isn't
[28:37] always the case price headers are
[28:39] designed to ensure that additional
[28:41] Supply is valued appropriately and the
[28:43] exact value of the supply is determined
[28:45] based on something called the operating
[28:47] Reserve demand curve or the
[28:50] ordc when system reserves fall below 7
[28:53] gaw urot attaches a price add to all
[28:55] lmps across the system based on the or
[28:59] DC essentially when there are fewer
[29:01] reserves the price Adder
[29:03] increases when urot has 3 gatts or less
[29:07] of system reserves this indicates
[29:09] emergency conditions at this stage all
[29:11] prices on the system are set to the
[29:13] systemwide offer cap of $5,000 per
[29:16] megawatt
[29:17] hour this is the highest amount that
[29:20] generators can be paid for generating an
[29:21] aot and it's set by the Public Utility
[29:23] Commission of
[29:26] Texas so how does this second price
[29:28] Adder work it's called the reliability
[29:30] deployment price Adder it comes into
[29:32] play when urot takes certain out of
[29:34] Market reliability actions to reduce
[29:36] demand or increase
[29:38] Supply the most common is reliability
[29:41] unit commitment or Ruck this is when
[29:44] urot commits generators to be online
[29:46] when they otherwise would have been
[29:48] offline using Ruck can actually suppress
[29:51] prices in
[29:52] OT this is because urot can end up with
[29:55] excess Supply online that it doesn't
[29:56] actually need
[30:02] to calculate this price Adder urot
[30:04] Begins by finding what the system Lambda
[30:06] would have been if these reliability
[30:08] actions were never taken generators are
[30:10] paid the difference between that value
[30:12] and the actual system
[30:15] Lambda it's worth noting that the
[30:17] majority of the time these price adders
[30:19] both have a value of $0 per megawatt
[30:21] hour this means that they do not affect
[30:23] prices across the system and when either
[30:26] of these price adders are above zero
[30:28] they apply to every LMP in
[30:30] urot and that's it in this series we've
[30:33] covered why urot exists how urot
[30:36] balances the supply and demand in real
[30:38] time and how Market participants make
[30:40] money in OT thanks for watching I'll see
[30:42] you soon
[30:46] [Music]