The Electric Reliability Council of Texas (ERCOT), which operates the electric grid for most of the state of Texas, has experienced steadily growing demand over the last several years. In a state where 1,000 new residents are added each day, ERCOT has set new demand records, particularly during 2011. Along with rising demand, recent generating unit retirements and the cancellation or postponement of several capacity projects has presented new challenges to maintaining adequate planning reserve margins. Studies indicated that ERCOT could see reserve margins drop below established reliability targets in the coming years. Prices in ERCOT’s energy-only market had been unable to attract sufficient investment to ensure adequate capacity reserves, so the system-wide scarcity pricing cap was increased, reaching $9,000 per MWh in 2015.


Adjustments to scarcity pricing have spurred investment activity in ERCOT, with 8000 MW of capacity – primarily industrial gas turbines – planned for development. Many of these projects are based on the GE 7FA.05 gas turbine. The IPP investment business case is to provide Day-Ahead Market heat rate call option backed by the 7FA.05 to a Load-Serving Entity. Back-cast analysis using historical price and temperature conditions during 2011–2014 has shown that the fair market value of a heat rate call option based on a Wärtsilä 18V50SG internal combustion engine (ICE) power plant is higher than the 7FA.05 power plant. This is because the Wärtsilä 18V50SG has higher efficiency and less derating at high temperatures than the 7FA.05. However, the average value of both technology options is lower than the required option fee to cover the debt service and operations and maintenance costs, and does not justify investment purely based on hedging.

    More information


   Matti Rautkivi

   Sales & Marketing Director,
   Wärtsilä Energy Solutions
    Send Email