The Electric Reliability Council of Texas (ERCOT) was requested by Public Utility   Commission of Texas (PUCT) leadership to conduct an “analysis of the likely effects of proposed climate change legislation on electricity prices in the ERCOT market.”   Consistent with a similar study conducted by the PJM Interconnection, ERCOT focused on the near-term impacts of this potential legislation. Longer-term effects, such as changes in the installed generation capacity as a result of the impacts of the legislation, were not studied. Changes to the transmission system and related costs that might be warranted due to changes in generation dispatch as a result of the imposition of carbon allowance costs or decreases in system load were not evaluated or included. The analysis assumes that the goals of the legislation must be met directly by reductions in carbon emissions by ERCOT-region generation. ERCOT has not attempted to determine the equilibrium price of allowances or the appropriate level of tax to result in the level of reduction targeted in proposed climate-change legislation.     

ERCOT performed this analysis by simulating the cost-based, hourly dispatch of all existing and committed generation in ERCOT region to serve the electric load in the region for the year 2013. The generation was dispatched according to its variable cost, including carbon emissions allowance costs, while adhering to the limitations of the transmission system and other reliability requirements. Because the economic dispatch used in the simulations performed for this study is cost-based, it does not include any market-driven bidding behavior or scarcity pricing, and the wholesale prices and wholesale market costs reported from the simulations are also cost-based as a result.     

The simulations were performed for several scenarios defined by: 1) the level of natural  gas prices ($7 and $10 per MMBtu); 2) the size of potential reduction in energy use as  compared to the forecasted load for 2013 (0%, 2% , 5% and 10% reductions); and, 3)  the amount of installed wind generation (the approximately 9,400 MW of existing and  committed wind generation capacity and the 18,456 MW of total wind generation  capacity for which the PUCT has ordered a transmission plan to be constructed in the  Competitive Renewable Energy Zones (CREZ) Docket 33672). For each scenario, simulations were performed at increasing carbon allowance costs of $0, $10, $25, $40, $60 and $100 per ton of CO2.  Read the Full Report