Thursday, November 1, 2012

Texas PUC Approves Doubled Wholesale Price Cap to Spur Power Plant Construction

The seldom heard market option for securing sufficient generation capacity has led Texas to move from a $3500/MWh market cap starting this year to plans for a $9000 cap.
Even then, the potential for that price is not universally accepted as being sufficient motivation for private suppliers to construct enough capacity to satisfy reserve requirements.
Other options include capacity markets and strategic reserve mechanisms.

Texas PUC Approves Doubled Wholesale Price Cap to Spur Power Plant Construction :: POWER Magazine:
In a bid to encourage construction of new power plants in power-strapped Texas, the state's Public Utility Commission (PUC) last week voted to double the wholesale price cap for electricity prices by the summer of 2015.

The action raises the cap from the current $4,500/MWh to $9,000/MWh by June 2015. Interim increases call for the cap to be raised to $5,000/MWh in the summer of 2013, and to $7,000/MWh by the summer of 2014. This June, the PUC voted to increase the cap from its previously limit of $3,000/MWh to $4,500/MWh.

The vote comes on the heels of a June report from consultants at the Brattle Group that found new investment in the state was impeded by low wholesale power prices due to low natural gas prices. However, the report found that increasing peak wholesale power prices to $9,000/MWh would only raise the region's reserve margin to 10% above peak demand—much less than the 13.75% reserve margin recommended by the Federal Energy Regulatory Commission. The authors recommended instead that either the market design be adjusted or reliability objectives revised. 
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