Thinking Economically: Texas’ Competitive Capacity Market

Musings on Economic Freedom from the Texas Public Policy Foundation’s

Center for Economic Freedom

 

 Texas’ Competitive Capacity Market

 

Regulators and special interests are pushing for a capacity market—and its associated $4 billion a year electricity tax—to replace Texas’ competitive electricity market. But what if a capacity market already existed in Texas?   The term “energy-only,” used to describe the current Texas market, is at best a misleading term because a large portion of power flows under contracts between REPs and generators focused on providing adequate capacity. The truth is that Texas’ competitive market is already functioning as a capacity market without the $4 billion electricity tax andexcessive regulation proposed by advocates of a centralized capacity market.   Energy economist and Foundation Senior Fellow Robert Michaels details how the current competitive market accomplishes the goal of maintaining enough capacity to ensure a reliable electricity grid in his latest Foundation paper and presentation.   Electricity in Texas: Markets, not Manipulation   Profits are hard to come by for some generators in Texas. But Bill Peacock explains in his latest paper why this doesn’t justify increased regulation of the Texas electricity market and a $4 billion a year electricity tax.   The projections of low future reserves used to justify the interventions don’t match with reality. The Brattle Group, for instance, assumes unchanging market conditions. And the projections of both Brattle and ERCOT don’t explain how the future could look so bleak compared to the affordable, reliable supply of electricity the competitive market has provided us for more than the last decade.   Manipulating prices and mandating reserves aren’t the answer for Texas; instead, we should release the full potential of Texas’ world-class electricity market by reducing excessive market intervention by the PUC, supporting the ongoing process of improving the systems and protocols at ERCOT, and eliminating subsidies for renewable energy.

Also see:   Texas’ Wind Lobby Spins an Epic Tale Jan 22nd Kathleen Hunker   ERCOT's Capacity Market: What if it Already Exists? Jan 22nd Robert Michaels   Supply and Demand 101: Making Money in the Texas Electricity Market Jan 16th Bill Peacock   ObamaCare and the Road to Serfdom Jan 15th Bill Peacock

Bill

 

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Bill Peacock

Vice President of Research

Director, Center for Economic Freedom

Texas Public Policy Foundation

bpeacock@texaspolicy.com