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Lynne Kiesling and Vernon Smith on Texas electricity

Summary:
How can the resilience of ERCOT’s grid be improved without resorting to costly regulatory mandates that may or may not yield benefits? ERCOT could implement clear market rules requiring natural gas generators to have firm supply contracts in order to be certified as an eligible resource for emergency conditions. Plant owners have incentives to do so because they would have market access under high-price conditions where their performance would more than compensate them for the insurance cost of fuel security. ERCOT can also take advantage of Texas’ deregulated retail market structure to incentivize more customers to reduce consumption in return for bill savings, creating demand flexibility. Using digital devices and automation to send prices to residential devices would allow consumers to

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How can the resilience of ERCOT’s grid be improved without resorting to costly regulatory mandates that may or may not yield benefits? ERCOT could implement clear market rules requiring natural gas generators to have firm supply contracts in order to be certified as an eligible resource for emergency conditions. Plant owners have incentives to do so because they would have market access under high-price conditions where their performance would more than compensate them for the insurance cost of fuel security.

ERCOT can also take advantage of Texas’ deregulated retail market structure to incentivize more customers to reduce consumption in return for bill savings, creating demand flexibility. Using digital devices and automation to send prices to residential devices would allow consumers to reduce their demand during extreme stress and high prices. Similarly, the Texas market design is well-suited to increasing battery storage, which has been made increasingly economical due to innovation. Batteries enable households to choose to self-insure against outage risk, and when interconnected in their local distribution grid, they can serve as resources to provide energy or grid services to others.

Here is the full opinion piece, via Kurt B.

The post Lynne Kiesling and Vernon Smith on Texas electricity appeared first on Marginal REVOLUTION.

Tyler Cowen
Tyler Cowen is an American economist, academic, and writer. He occupies the Holbert C. Harris Chair of economics as a professor at George Mason University and is co-author, with Alex Tabarrok, of the popular economics blog Marginal Revolution. Cowen and Tabarrok have also ventured into online education by starting Marginal Revolution University. He currently writes the "Economic Scene" column for the New York Times, and he also writes for such publications as The New Republic, the Wall Street Journal, Forbes, Newsweek, and the Wilson Quarterly.

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