Operating Reserve Demand Curve, Scarcity Pricing and Intermittent Generation: Lessons from the Texas ERCOT Experience

Abstract

Resolving the resource adequacy problem has been usually entrusted to the imposition of some kind of long-term capacity requirements or to forward markets. The Operating Reserve Demand Curve (ORDC), which is linked to short-term market conditions and does not require central planning, has been presented as an alternative system with which to ensure resource adequacy. Using hourly data from the Texas ERCOT market, we empirically show that ORDC prices are significantly negatively affected by wind generation. We find that, if wind generation is relatively low, a 1% increase in wind generation decreases the ORDC price by around 0.2-0.1%. Moreover, if wind generation is greater than 8,000-9,000 MW, the ORDC price is expected to be zero. This may preclude investors from obtaining clearly perceivable long-term price signals, such as capacity requirements intent.