Cost-Benefit Analysis Of ERCOT’s Future Ancillary Services (FAS) Proposal
We were asked by the Electric Reliability Council of Texas (ERCOT) to evaluate the economic benefits of its proposed Future Ancillary Services (FAS) design. ERCOT proposed FAS to efficiently maintain grid reliability as inverter-based generation displaces traditional generation and as new technologies offer new ways to provide ancillary services.
The essential differences between FAS and ERCOT’s Current Ancillary Services (CAS) design are that FAS unbundles ancillary services and fine-tunes service requirements to system conditions and resource capabilities. FAS unbundles CAS’s Responsive Reserve service (RRS)—the service used to arrest frequency decay and restore frequency to 60 Hz in the event of the two largest contingencies—into three distinct services: Fast Frequency Response, Primary Frequency Response, and Contingency Reserve, as described in Section II.B. These services enable new technologies and more load resources to provide valuable services that are compatible with their capabilities.
Both of these broad changes—unbundling services and fine-tuning requirements—represent good market design in that they increase the possible ways to meet reliability objectives, and they avoid procuring more reserves than necessary. Our analysis informs the nature and magnitude of FAS’s benefits, which ERCOT and stakeholders can compare to the implementation costs of FAS. We focused primarily on the economic benefits but, for completeness, we also describe reliability benefits and costs. We did not translate reliability benefits into measures of economic savings.