Does electricity get cheaper and cleaner with more wind in ERCOT?

Transcription

1 Does electricity get cheaper and cleaner with more wind in ERCOT? Chen-Hao Tsai Center for Energy Economics, The University of Texas at Austin Derya Eryilmaz NERA Economic Consulting Inc. 35 th USAEE/IAEE North America Conference November 14, 2017 USAEE/IAEE 2017 Houston Conference 1

2 ERCOT has the most aggressive wind capacity additions and generation outputs among all organized wholesale electricity markets in the U.S. Installed capacity reached 18.9 GW in 2016 Wind farms supplied 15.1% of ERCOT load in 2016 USAEE/IAEE 2017 Houston Conference 2

3 Motivation and Research Questions Motivation As claimed by conventional fossil fuel generators, increasing penetration of subsidized wind is depressing wholesale price and pressuring the financial viability of IPP business Mauricio Gutierrez, NRG President and CEO, said in March 2017 that the independent power producer model is now obsolete and unable to create value over the long term. There is also a long standing concern that rapid ramping of fossil fuel plants to accommodate wind is emission-intensive. Research Questions What is the impact of increasing wind on wholesale price in ERCOT? Has ERCOT witnessed emission reductions from increasing wind? USAEE/IAEE 2017 Houston Conference 3

4 Contributions of our research The ERCOT setting We utilize high granular 15-minutes Security Constrained Economic Dispatch (SCED) data We analyze data between 2014 and 2016, a period with significant growth in wind capacity/generation We make improvements to existing literature On price impact, our analysis is based on nodal instead of zonal data structure, allowing us to differentiate nodal prices at wind versus non-wind resource nodes. On emission impact, we propose a system of equations that include price in a generation resource s output decision. USAEE/IAEE 2017 Houston Conference 4

5 First research question: Does electricity get cheaper with more wind in ERCOT? USAEE/IAEE 2017 Houston Conference 5

6 The most common explanation on the impact of renewable on wholesale prices: Merit-Order-Effect Graph: Courtesy of Thomas Deetjen and Joshua D. Rhodes at the University of Texas at Austin. However, can we apply this Merit-Order-Effect to a Nodal market? USAEE/IAEE 2017 Houston Conference 6

7 We propose to look into how nodal prices at non-wind resources have changed under different load, wind generation, and natural gas prices. ERCOT has over 700 resource nodes and corresponding settlement point price Distribution of Real-Time resource node settlement point prices on June 2, :30am. *A resource node is an electrical bus where a Resource s measured output is settled. USAEE/IAEE 2017 Houston Conference 7

8 Empirical Specification Price i,t = β 1 L t + β 2 W t + β 3 NG t + u i + Z t + ε i,t Price i,t = Nodal Settlement Price at a non-wind resource i at dispatch interval t L t = Aggregate 15-minutes ERCOT load (MW) Expected sign: positive W t = Aggregate 15-minutes ERCOT wind generation (MW) Expected sign: negative NG t = Natural gas price ($/mmbtu) Expected sign: positive u i = Resource Node dummy Z t = Vector of time dummies. USAEE/IAEE 2017 Houston Conference 8

9 We break our analysis into six panels, by seasons, and by on-peak / off-peak hours, per ERCOT definition Season Peak Load Summer (Jun-Sept) Peak Load Winter (Dec-Feb) Off-peak months (Mar-May; Oct-Nov) Hours On-Peak (7am to 10pm, Mon-Fri) Off-Peak (11pm to 6am, Mon-Fri, and Sat./Sun) USAEE/IAEE 2017 Houston Conference 9

10 Effect of wind on price: (use peak load summer months as example) Panel A: Peak Load Summer Months (June Sept); On-peak Hours (7am to 10pm Mon-Fri) (1) (2) (3) (4) Load *** (4.44e-06) *** (4.50e-06) *** (4.92e-06) *** (4.92e-06) Wind Gen *** (1.29e-05) *** (1.30e-05) *** (2.64e-05) *** (2.64e-05) NG Price 13.49*** (0.191) 11.39*** (0.267) 6.254*** (0.425) (9.197) Panel B: Peak Load Summer Months (June Sept); Off-peak Hours (11pm to 6am Mon-Fri; Sat, Sun) Load *** (2.25e-06) *** (2.28e-06) *** (2.63e-06) *** (2.63e-06) Wind Gen *** (6.87e-06) *** (6.95e-06) *** (1.26e-05) *** (1.26e-05) NG Price 9.588*** (0.107) 8.759*** (0.161) 3.315*** (0.277) (0.940) Month##Year Fixed Effect X X Date Fixed Effect X X Monthly NG price for power generator X X Daily Henry Hub spot price X X USAEE/IAEE 2017 Houston Conference 10

11 Effect of wind on price: Summary For every additional 1,000 MW wind generation in 15-minutes SCED interval: USAEE/IAEE 2017 Houston Conference 11

12 Second research question: Does electricity get cleaner with more wind in ERCOT? Emission data: U.S. EPA Air Markets Program Data USAEE/IAEE 2017 Houston Conference 12

13 Balance between NG and Coal Generation in ERCOT USAEE/IAEE 2017 Houston Conference 13

14 Empirical Specification: a system of equations 1) Price i,t = α 1 Price i,t 1 + α 1 Price i,t 2 + α 3 NG t + α 4 Coal t + u i + Z t + δ i,t 2) Facility Gen i,t = α 1 Price i,t + α 2 Net Load t + u i + Z t + θ i,t Pricei,t 2 + α 3 W t + α 4 3) Emission i,t = α 1 Price i,t + α 2 u i + Z t + ε i,t Facility Gen i,t + α 3 W t + USAEE/IAEE 2017 Houston Conference 14

15 Effect of wind on emission: Coal Plants (use peak load summer months as example) We report coefficient estimates of dependent variables ERCOT Wind Generation in the third stage Emission equation of our system of equations Panel A: Peak Load Summer Months (June Sept); On-peak Hours (7am to 10pm Mon-Fri) (1) (2) (3) (4) CO *** *** *** *** SO (0.003) (0.003) (0.009) (0.009) NOX *** *** (0.001) (0.001) Panel B: Peak Load Summer Months (June Sept); Off-peak Hours (11pm to 6am Mon-Fri; Sat, Sun) CO *** *** *** *** SO (0.003) (0.003) (0.006) (0.006) NOX ** ** (0.001) (0.001) Month##Year Fixed Effect X X Date Fixed Effect X X Monthly NG price for power generator X X Daily Henry Hub spot price X X USAEE/IAEE 2017 Houston Conference 15

16 Effect of wind on emission: NG Plants (use peak load summer months as example) We report coefficient estimates of dependent variables ERCOT Wind Generation in the third stage Emission equation of our system of equations Panel A: Peak Load Summer Months (June Sept); On-peak Hours (7am to 10pm Mon-Fri) (1) (2) (3) (4) CO *** *** *** *** NOX *** *** *** *** Panel B: Peak Load Summer Months (June Sept); Off-peak Hours (11pm to 6am Mon-Fri; Sat, Sun) CO *** *** NOX *** *** *** *** Month##Year Fixed Effect X X Date Fixed Effect X X Monthly NG price for power generator X X Daily Henry Hub spot price X X USAEE/IAEE 2017 Houston Conference 16

17 Effect of wind on hourly emission at coal plants: Summary For every additional 1,000 MW wind generation: *with Date Dummy USAEE/IAEE 2017 Houston Conference 17

18 Effect of wind on hourly emission at NG plants: Summary For every additional 1,000 MW wind generation: *with Date Dummy USAEE/IAEE 2017 Houston Conference 18

19 Observations and Conclusions The price-reducing effect of wind differ across seasons/hours In low natural gas price environment, the impact of renewables on suppressing price is not negligible The emission-reducing effect of wind also differ across seasons/hours The magnitude of emission reduction per 1,000 MW of additional wind output at a 15-minute SCED dispatch interval is relatively small at facility level Retiring coal plants could be more effective in emission reduction than building more wind More than 4,000 MW of coal plants are set to be retired in January 2018 USAEE/IAEE 2017 Houston Conference 19

20 Thank you for your attention Center for Energy Economics Contact: Chen-Hao Tsai USAEE/IAEE 2017 Houston Conference 20

21 Backup slides USAEE/IAEE 2017 Houston Conference 21

22 ERCOT wind tends to be negatively correlated with load USAEE/IAEE 2017 Houston Conference 22

23 High wind penetration occurs mostly during off-peak load months USAEE/IAEE 2017 Houston Conference 23

24 Non-wind resource nodal prices declining during both on-peak and off-peak hours from 2014 to 2016; however the pace of price drop slowed down between 2015 and 2016 *For illustrative purpose, we graph price points between 0 and 80 $/MWh USAEE/IAEE 2017 Houston Conference 24

25 As wind penetration level increases, distribution of nodal prices shifts toward left USAEE/IAEE 2017 Houston Conference 25

26 At a fixed wind penetration level, distribution of nodal prices shifts toward left from 2014 to 2016, along with declining NG price USAEE/IAEE 2017 Houston Conference 26

27 Using our coefficient estimates to calculate average changes in nodal prices of non-wind resources From 2015 to 2016, during Peak Load summer months and at onpeak hours Load grows by 1,430 MW Effect of Load: $/MWh 1,430 * Wind generation grows by 924 MW Effect of wind: $/MWh 924 * NG price decrease by 0.06 $/Mcf Effect of natural gas price: $/MWh * Estimated change in non-wind nodal price: $/MWh USAEE/IAEE 2017 Houston Conference 27

28 Change in RT nodal price $/MWh Estimated and actual changes in non-wind nodal prices; On-Peak Hours Off-Peak Hours On-Peak Hours Off-Peak Hours On-Peak Hours Off-Peak Hours Peak Load Summer (Jun-Sept) Peak Load Winter (Dec-Feb) Off Peak Months (Mar-May; Oct-Nov) Load Wind Generation NG Price Estimate ERCOT USAEE/IAEE 2017 Houston Conference 28