ERCOT Launches Long-Awaited Texas Nodal Market

On December 1, 2010, the Electric Reliability Council of Texas (ERCOT) began operation of its long-planned nodal wholesale market.  This market has been in the works since September, 2003 when the Public Utility Commission of Texas directed ERCOT to replace its handful of congestion management zones, or CMZs, with what would develop into a congestion management system based on more than 4,000 nodes "” points of potential energy price differentiation within the operating ERCOT grid.  In contrast to the blunt instrument of CMZs, Nodal ERCOT is expected to produce energy and ancillary service prices that are locationally granular, to lower the cost of what is dispatched, and to assign the cost of congestion directly to shippers.

For the first time in the Texas market, Nodal ERCOT introduces a centralized, day-ahead energy auction market (DAM) that will exist in addition to the pre-existing bilateral market available to qualified scheduling entities (QSE).  Access to the DAM will provide day-ahead price discovery and certainty and can be used to optimize concurrently (i.e., co-optimize) purchases and sales of energy, ancillary service capacity, and congestion revenue rights around bilateral contracts.

Nodal ERCOT retains its unique energy-only resource adequacy model "” there is no separate capacity market as in New York and New England "” similar to the power markets in Australia, Alberta, and New Zealand.  ERCOT will ensure that sufficient generating capacity is procured through a day-ahead and hour-ahead reliability unit commitment (RUC), which replaces the former out-of-merit capacity and replacement reserve services.

Replacing the balancing QSE energy portfolios every 15 minutes in each CMZ, every five minutes Nodal ERCOT now operates a security constrained economic dispatch of every individual resource across the grid.  The significantly greater flexibility of this dispatch will accommodate more economically intermittent generation resources, such as wind and solar, in which ERCOT is flush.