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

Abstract

In this study, we seek to explore the impact of a state level transmission expansion project, the Competitive Renewable Energy Zone (CREZ), whose goal is to integrate a massive amount of wind energy, on the wholesale market prices in the Electric 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 smooth transition to a well-integrated market. For example, Structural impulse responses suggest that a price shock after the integration takes double the time to die off compared with the before-integration period. 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 have increased dramatically. Our study contributes to the literature by connecting the expansion of physical transmission lines with electricity market integration.