The Environmental Defense Fund on Tuesday released a report on ERCOT‘s energy-only market that concludes it can meet future demand growth, increase grid resilience and keep energy costs down through demand-side solutions.

Titled “Resource Adequacy Challenges in Texas: Unleashing Demand-side Resources in the ERCOT Competitive Market” and written by energy consultant Alison Silverstein, the report posits that ERCOT’s market design “works efficiently and effectively, and it should be maintained.”

The EDF report also says that distributed energy resources, such as solar and storage, and demand-side measures, such as energy efficiency and automated and price-responsive demand, can respond to prices as well as to grid management signals.

“These assets should be used to de-risk the electric system by reducing peak load and ancillary service needs,” Silverstein writes. “All of these resources can be coordinated and integrated with advanced monitoring, forecasting, analytics, communications and controls to integrate and balance demand with supply for reliable, affordable and sustainable electric service.”

“The whole demand-side was a little bit of a surprise,” Silverstein told RTO Insider.

She said she began the report by considering whether competition within ERCOT’s market would continue to work and whether there would be “fingernail chewing every summer,” given the ISO’s 10.6% reserve margin. (See ERCOT Sees Summer Repeat: Record Peak, Tight Reserves.)

“But when I started looking at the characteristics of the demand-side today as we get more energy efficiency and automated demand-side capabilities, and we get more photovoltaic and battery storage on the customer side, we have the potential to make demand dispatchable,” Silverstein said. “We could manage demand to better balance supply, which is dispatchable and intermittent. Rather than put all the pressure on supply alone, demand-side measures offer many benefits to customers, besides holding down the prices.”

Demand-side resources can reduce the burden and cost of assuring adequate supply and flexibility services and also protect customers while improving system and community resilience, she said.

As Silverstein was buttoning up the report in February, the COVID-19 coronavirus was upending life for much of the world. Soon thereafter, Texas was hit by a collapse in oil and gas prices, thanks to a production price war between Russia and Saudi Arabia, and a 30% drop in U.S. oil consumption.

Texas produces more than 42% of the nation’s crude oil, Silverstein said, but the U.S. rig count has fallen for nine straight weeks to 374. A year ago, 988 rigs were in operation. Texas is home to about half of those rigs, most in the Permian Basin of West Texas. On Tuesday, West Texas Intermediate Crude prices were trading around $25/barrel, a far cry from the halcyon days of $150/barrel oil.

Asked about the oil slump’s effect on the ERCOT market, Silverstein said simply, “It isn’t going to be good.”

West Texas’ oil fields provided the fastest-growing demands for electricity until recently, she said, but as those wells are shut in, both demand and the need for oil field workers will drop. The oil and gas industry accounts, directly and indirectly, for about 1 in 6 of the state’s jobs.

“That means we both lose the direct consumer of electricity and the electricity demand of all those people employed in oil and gas and those jobs they supported,” she said. “It’ll have a huge ripple effect for demand.”

The reduced pressure on demand and prices will lead to the most uneconomical power plants shutting down. “Some of those plants in [ERCOT’s interconnection] queue will vaporize,” Silverstein said, leading to continued operation of older plants.

In the report, Silverstein said both COVID-19 and the oil slump will create long-term shifts in ERCOT demand, leading to a “multi-year” drop in residential and commercial energy use. They will “delay, but not negate” the region’s long-term challenges, she wrote.

“Texas’ energy profile will continue to change and become more complicated,” the report says. “New technologies and energy resources — particularly more demand response and energy efficiency — offer ways to improve resilience, maintain reliability, reduce costs and further modernize ERCOT’s successful competitive market.”

The report outlines four recommendations to maximize demand-side resources’ potential:

• Eliminating legislative and regulatory barriers that make it harder or less attractive to deploy demand-side resources, including any barriers to their participation in the ERCOT market;
• Relying more heavily on energy efficiency by strengthening standards and requirements and allowing local governments to set more aggressive standards for their jurisdictions;
• Requiring that any facilities planning publicly funded renewable energy additions first undergo an energy efficiency audit to ensure the project’s prudent use of funds, a move EDF said would save energy and avoid investing in unnecessary infrastructure;
• Supporting local and government investment that creates new funding mechanisms in demand-side management programs and technology.

EDF said the report is the first to clearly outline the relationship between supply and demand for the state’s resource adequacy and present how demand-side resources can fit within Texas’ existing market.

John Hall, EDF’s director of regulatory and legislative affairs, said demand reduction has always been part of ERCOT’s market. However, he said, meeting demand continues to be accomplished primarily by increasing generation capacity.

“We cannot build our way out of this,” Hall said in a statement. “Demand-side solutions are the cheapest sources of new electricity. They’re certainly cheaper than building new power plants, and they are often more cost-effective than utility scale wind and solar.”