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Winds of Change in Texas

Rising gas prices spark a rush to wind farms, straining grid capacity and raising larger issues about market design.
Fortnightly Magazine - April 1 2003
  • to the problem of wind farms piling into a congested area. ERCOT would refuse interconnection for certain facilities based on a judgment of how congested a local line might become.
  • Locational Marginal Pricing. Implementing LMP in a market with retail choice raises some issues that other RTOs in the country are still addressing. Likewise, the form of LMP that FERC's SMD eventually will adopt is unclear.
  • Direct Assignment. Directly assigning local congestion fees would be significantly less costly and time consuming than implementing LMP in ERCOT: (a) $2 million vs. $25 million to $40 million for LMP; and (b) six to eight months vs. a minimum of 24 to 30 months for LMP. (These are estimates only.) ERCOT has reviewed MOD's proposal to assign local congestion fees and found the proposal to be technically feasible.

The Proposed Method:

  • Elements. MOD's proposal uses a mathematical optimization model consisting of: (1) an objective function: (2) resources available for redispatch; and (3) operational constraints.
  • Optimal Dispatch. Optimizing produces shadow prices that are associated with each transmission constraint. These shadow prices reflect the marginal value of local transmission resources-i.e., how much congestion costs could be reduced by adding one more megawatt of grid capacity on the constrained element.
  • Congestion Fees. Generators in a zone should be assigned a congestion fee (or payment) that equals the shadow prices on the congested local elements applied to the relative flow that they induce on these elements. -B.W.R.

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