The average ORDC adder for 2022 equaled $6.33 per megawatt hour, which is more than 12 times higher that the average adder for 2021, excluding that associated with Winter Storm Uri.
An ERCOT-administered system that delivers financial subsidies to electric generators is increasing in cost, according to a new report from the grid operator.
Known as the Operating Reserve Demand Curve, or ORDC, the computerized system calculates values that it automatically adds to wholesale power prices during tight grid conditions. These subsidies go to generators in increasing volumes as power becomes more scarce and, in theory, provide economic incentives for them to invest in long-term reliability.
But in a report released by ERCOT on October 31, the grid operator documented that ORDC costs increased significantly after the Public Utility Commission ordered changes to it this year. Under the new PUC rules, the ORDC price subsidies occur earlier and more frequently.
According to the report’s executive summary, these new pricing policies have put upward pressure on wholesale power prices overall. As such, the report seems to confirm separate statements from the Independent Market Monitor of the ERCOT market who told lawmakers in March that recently ordered changes by the PUC has increased market costs by hundreds of millions of dollars.
The new ERCOT report found that the average ORDC adder for 2022 equaled $6.33 per megawatt hour, which is more than 12 times higher than the average adder of $0.41 per MWh for all of 2021 (excluding the adder during Winter Storm Uri). At the $6.33 level, the ORDC adder represents 8.1 percent of the all-in energy price for 2022, according to the report. At $0.41 per MWh, the ORDC adder represented 1.0 percent of the energy price.
However, the report does not include calculations for the total annual cost of the ORDC, or the total cost of the recent PUC modifications. By contrast, the IMM has noted that for the first five months of 2022, the total cost of the ORDC was $915 million, of which $490 million could be attributed to the rule modifications. Extrapolating from those figures, the ORDC costs for all of 2022 could reasonably be estimated as higher than $2 billion, with over half of that amount attributable to the PUC’s rule modifications.
ERCOT, in its report, also noted that the ORDC should encourage otherwise marginally-profitable dispatchable power plants to come on line during periods when they otherwise might remain idle. The report identified a $10-per-megawatt adder as sufficient to finance the start-up costs of such an otherwise marginal unit, and noted that the adder exceeded that $10-per-mWh threshold on twice the number of occasions as under the previous ORDC policy before the PUC modifications.
You can read the new report here.