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May 23, 2016
Market Forces Primary Driver of Transition in the ERCOT Grid, According to Report by Brattle Economists

A new report authored by Brattle economists finds that over the next 20 years, the price of natural gas is the primary driver for The Electric Reliability Council of Texas’ (ERCOT) transition to a clean energy future. This is driving the transition much more than any other factor, including currently proposed federal environmental regulations, the authors conclude.

The Brattle study finds that persistently low natural gas prices (<$4/mmbtu in nominal dollar by 2035) could cause the retirement of 60 percent (12 GW) of ERCOT’s current fleet of coal-powered plants by 2022. Together with continued declination of solar PV costs, by 2035, about 85 percent of ERCOT power generation could come from natural gas, wind, and solar power, with natural gas combined cycle (NGCC) plants providing the lion’s share of new generation. According to the authors, these market forces will reduce CO2 emissions in ERCOT below the requirements of proposed new standards in the Environmental Protection Agency’s (EPA) controversial Clean Power Plan (CPP) through 2035. Likewise, the EPA’s Regional Haze Rule (if implemented) would have only a marginal impact (<15%) on projected coal plant retirements through 2022. Additionally, wholesale electric prices could stay around $41 per MWh ($2015), similar to 2014 prices (other than inflation).

To reach these forecasts, the Brattle authors examined several market factors, including the availability of cheap, abundant natural gas, and the falling cost of utility-scale solar PV technology, along with regulatory factors such as enhanced energy efficiency programs and potential new federal regulations on power plant emissions.

The report, “Exploring Natural Gas and Renewables in ERCOT, Part IV: The Future of Clean Energy in ERCOT,” is authored by Brattle Principal Ira Shavel, Associates Yingxia Yang and Roger Lueken, and Research Analysts Andrew O’Brien and Colin McIntyre. The study is part of a series of studies Brattle has prepared for TCEC beginning in 2013 that analyze how natural gas and renewable energy might interact in the ERCOT grid in future years, depending on a range of market and regulatory factors. The study can be downloaded using the link below.