The Influence of Information Technology on the Energy Mix in Texas

Direct investments by major corporations in Texas wind ($6.5 Billion) with wind-inspired investments likely in the tens of billions
The amount of land area ERCOT covers in Texas
How much average retail rates for electricity in Texas have fallen in the past 10 years


This report examines the impacts of information technologies (IT) on carbon emissions and electricity price in electricity markets. Specifically, this report focuses on the role IT played in enabling the Electric Reliability Council of Texas’ (ERCOT) transition to a nodal market, the subsequent impacts on the penetration of renewable energy, and the resulting effects on carbon emissions and electricity prices. In summary, IT and data have been core enablers in this transition.


Introduction and Background

This report looks at the role of IT in ERCOT as a case study for the role it might play in modern power markets elsewhere. Power markets are at a transition, with some stakeholder groups pushing towards deregulation to encourage more competition, some pushing for re-regulation to protect conventional generators such as nuclear and coal, and some pushing for mandates that include storage, demand response, distributed energy resources, or renewable energy. In all of these instances, the increasing information intensity of the power sector is driving a growing role for IT. Understanding the recent ERCOT example is instructive of the increasing IT demands in a modern electric market.


• Electricity markets have been evolving since their inception and now constitute one of, if not the most complex machine(s) on earth. ERCOT covers 75% of Texas land area and about 85% of the electric load within the state.

• The ERCOT grid connects more than 43,000 miles of transmission lines and more than 570 utility-scale generation units.

• ERCOT underwent a major transition in 2010 from zonal to nodal operation that enabled more efficient market performance.

• The percentage of electricity provided by wind in ERCOT has increased from 2% in 2006 to about 18% in 2017 while total electricity use has increased in parallel.

The Role of IT

•ERCOT operates multiple markets for energy and reliability that require quickly processing large volumes of data on electricity demand, supply, and transmission characteristics

• Real-time data-driven grid insight and assessment tools have helped facilitate the continued increase in wind and solar deployments in ERCOT.

• Accurate wind and solar forecasts benefit grids with high levels of renewable energy.

• ERCOT has developed a new IT-driven Reliability Risk Desk on the operation room floor to better incorporate data from and about wind and solar operations to grid operators.


How ERCOT Dispatches Power

ERCOT has multiple mechanisms for ensuring sufficient power plants are online to match demand in any given interval, including the Long Term System Assessments (LTSA) (which spans years and decades) to sub-second frequency response. However, the bulk of the energy managed by ERCOT is managed through the Security Constrained Economic Dispatch (SCED) of power plants. One can think of SCED as an energy auction that ERCOT holds every five minutes. Participating power plants bid how much power and at what price they are willing to sell into the market. ERCOT takes all the bids and sorts them from lowest to highest price. This sorted arrangement is often called a “bid-stack”. Then ERCOT sums the power plants’ capacities, stopping at the amount needed to meet demand. The most expensive dispatched generator is referred to as the marginal generator and its bid is the marginal clearing price of energy (mcpe). All the power plants at this threshold and below are awarded the right to put their power into the system and everyone is paid the marginal clearing price set by the marginal generator in that interval. The remaining power plants that bid higher than the marginal price are not dispatched, are not allowed to put power into the system, and are not paid. Figure 3 illustrates an example bid-stack for ERCOT sorted from lowest-to-highest price (in $/MWh along the yaxis) with the power plants’ capacities denoted by each bid’s width (in GW along the x-axis). At the time represented in Figure 1, ERCOT system-wide demand is about 40 GW, represented by the vertical black line in the figure. Thus, everything to the left of the black line (a mix of renewables, nuclear, coal, and natural gas) is sending power to the grid while everything to the right of the line is not. This auction is re-run every five minutes and the whole process starts over.

Changes to ERCOT

There have been some significant changes to ERCOT’s market that have changed the dispatch and operations of the market. ERCOT incorporates changes to its protocols through a stakeholder committee-driven Nodal Protocol Revision Requests (NPRR) process. Summarized below are a few of the recent changes that have directly affected ERCOT’s ability to leverage data and incorporate more wind and solar into the grid mix. One significant change was ERCOT’s transition from a zonal to a nodal market. ERCOT’s previous Zonal market only allowed ERCOT to balance supply and demand between four zones (West, North, South, and Houston), but not within each zone. Under this system, it was not always guaranteed that the cheapest generation source would be dispatched. The Nodal market divided the four zones into thousands of nodes and, because Nodal allowed for congestion pricing, power plant dispatch became more efficient.

Beyond ERCOT’s energy market, there are ancillary service markets that provide critical services for grid operations. These services, defined by FERC,10 include Scheduling, System Control and Dispatch, Reactive Supply and Voltage Control, Regulation and Frequency Response, Energy Imbalance; and Operational Reserves. Each of these services meets a specific need and has a different response time ranging from seconds to hours. Because reliable operation of a power system means that no component should function outside its safe operating range, even in the event of disturbances, and because of recent increases in variable renewable generators, the roles of ancillary services and operational reserves are receiving more scrutiny. Table 1 shows a summary of selected grid services, including longer planning assessments.

Dispatch of power plants was also reduced from 15 to 5-minute intervals allowing for more precise matching of load to generation. Because more changes in the market could be met with energy dispatch (turning power plants up and down every 5 instead of 15 min), lower levels of ancillary services (power plants on quick standby to make up for differences in load and generation) were needed. Having access to more data and computing ability enabled these rule changes that made the grid more finely-resolved in place and time. Because of the grid’s higher fidelity, it was easier to accommodate increasing levels of variable renewables without driving up reliability costs. Figure 5 (below) shows this reduction in Regulation-Up requirements (blue line) even as wind capacity (red line) continued to increase, with a big step-down in costs in 2010 when ERCOT’s methodology changed.

Recommendations on Future Efforts

For a sector that has typically operated on multi-decade timescales, today’s technologies and markets operate on sub-minute, sub-hourly timescales. This evolution opens up opportunities for new solutions to the challenges of maintaining grid reliability while decarbonizing.

Using IT to Enable Synthetic Inertia

One major hurdle for incorporating larger shares of renewables into the grid are the rotational inertial requirements used to maintain control of the grid frequency in the case of a generator failure or power line disruption. If a large power plant trips offline, the frequency of the grid will start to fall. The inertia of the rotating mass of shafts inside other power plants will resist the frequency fall and give primary frequency response time to come online. Grids typically set a minimum amount of inertia that must be available at all times. For ERCOT this threshold is about 100 gigawatt-seconds (GW-s). Different types of power plants contribute different amounts in inertia, but because wind and solar operate asynchronously by convention they are considered to be non-contributors to total inertia. This constraint could eventually lead to more wind and solar curtailments as other generators will be forced to stay online to meet the inertial requirements. Additional research is needed to develop the controls that could allow wind and solar to provide this type of grid support.

Expanded Ancillary Services and Batteries

Implementing operational and economic changes to the way that solar and wind resources are deployed could alleviate some grid stability concerns. First Solar recently demonstrated the ability to provide fast frequency response in California by self-curtailing total generation and using the extra power available to follow frequency regulation commands.76 ERCOT also requires that all wind turbines set aside 5% of their maximum power output so that it can be used for primary frequency response (response within 12 to 14 seconds) in the event of a frequency excursion. The latest wind turbines are also capable of supplying synthetic inertia (response in ~1 second) to the grid, but these abilities have not been enabled in ERCOT. Battery adoptions are growing as different business cases arise. FERC recently passed rules to allow batteries to buy and sell in the wholesale markets. While this decision will benefit battery technologies in the grid. it will introduce more variables for grid operators as now they will have units that can act as both supply and demand, with various multidirectional bidding structures. While batteries can allow for more renewable energy into the grid, the operational characteristics are more complex, and they do not always guarantee a reduction in carbon emissions. IT will play a key role for managing their operations.


Transactive Energy & Blockchain

Traditional grid structure is very hierarchical, or top down. Large generators generate electricity which flows through grid infrastructure and is purchased by end users. The traditional vertically-integrated utility has a similar structure, with a single entity owning most or all aspects of generation, conveyance, and billing of electricity. A transactive energy system is an energy grid that is more nodal. End points (including throughout the distribution grid) can be both consumers and producers, commonly called “prosumers.” For instance, technology can enable neighbors to sell their rooftop solar electricity to one another directly and automatically. Enabling this, however, will require significant IT infrastructure investments to operate successfully. This change would vastly increase the number of controllable points and prices on the grid. Because basic physics are still required to keep the grid stable, this type of grid will require exponentially more control and data analytics. Blockchain is a secure, linked, and distributed ledger technology that can manage and support the very large number of transactions that are required for a transactive grid. Because there are multiple (every node participating) copies of the ledger constantly being appended to and checked, fraud becomes much more difficult. The technology is designed to allow different users who might not know or trust each other to participate in a trusted transaction, such as buying and selling energy. Recent concerns over the energy intensity of blockchain and the services they support have resulted in movements to less energy-intensive ledger methods. While using blockchain technologies could allow peer-to-peer energy transactions to take place between any two untrusted parties, more research is needed into the effect of having very large numbers of bilateral contracts on overall grid transaction efficiency.

IT as a Direct Energy Enabler

As energy, IT hardware, and data processing and storage become cheaper, their interactions can help promote each other. Data centers currently consume about 2% of the total electricity used in the U.S. Cheap, consistent power has long been a selling point for datacenter locations because of their expensive cooling loads. Locations such as Washington state and Nevada have attracted investment because of their low industrial power costs. However, the price-depressing effects of large amounts of co-located renewables might be attractive to future data center developments even in locations that have typically had higher power costs, such as California. Data centers themselves can act as flexible load by running redundant locations and only utilizing certain locations when local renewable generation is high, and thus prices are low. This type of operation can save money and energy because it is oftentimes less energy intensive to move data than energy.


Information technologies have been and will continue to be crucial in allowing ERCOT and other grids to decarbonize by more efficient market operation and inclusion of variable, low carbon sources such as wind and solar without compromising grid reliability. Increased computing power has allowed real-time grid architecture and simulation tools to be utilized more often, allowing for a more consistent use of existing resources. More efficient market design has allowed the grid to remain stable with fewer backup resources. More accurately resolved, temporally and spatially, wind- and solar-resource forecasts have also allowed more confidence at the grid management level for greater levels of renewable energy penetration. Wind and solar, along with natural gas, have driven down both the total amount of CO2 emissions and the carbon intensity of electricity in ERCOT. These low-priced resources have reduced the wholesale market costs of electricity, which has also resulted in a lower retail cost of electricity for consumers. Underlying all of these changes are more data, and the information technologies that allow the data to be used in a coherent and actionable way.