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Transition and Integration of the ERCOT Market with the Competitive Renewable Energy Zones Project

Abstract:
In this study, we seek to explore the impact of a state level transmission expansion project, the Competitive Renewable Energy Zones (CREZ), whose goal is to integrate a massive amount of wind energy, on the wholesale market prices in the Electric Reliability Council of Texas (ERCOT). We find strong evidence for price convergence across ERCOT with accordance to the timing of the expansion of major sections of the CREZ. A variety of empirical analyses shows a gradual transition to a well-integrated market. We also find that regional-specific shocks became more important in terms of driving price change in other regions. Specifically, the impacts of Houston (demand) and the West (wind supply) on each other and the North and South regions have increased significantly. Our study contributes to the literature by connecting the expansion of physical transmission lines with electricity market integration.

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Energy Specializations: Renewables – Wind ; Electricity – Markets and Prices ; Electricity – Transmission and Network Management

JEL Codes: Q42: Alternative Energy Sources, Q41: Energy: Demand and Supply; Prices, Q54: Climate; Natural Disasters and Their Management; Global Warming, Q35: Hydrocarbon Resources

Keywords: load zone price, market integration, transmission expansion, wind energy

DOI: 10.5547/01956574.39.4.oru

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Published in Volume 39, Number 4 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.