Texas's Energy-only Resource Adequacy Paradox

The Electric Reliability Council of Texas suffers from two major incompatibilities between the market and resource adequacy targets. The reserve margin level is not supported by the price cap, even with a major increase scheduled for 2015. And the volatile nature of the scarcity pricing mechanism does incent new entry even in the case of a supply deficiency. In the long term, a forward-looking resource adequacy construct with a mandatory reserve margin target would be helpful in maintaining grid reliability by providing cash flow stability for new entries in the form of generation or demand response.