MCPE

What is MCPE or Market Clearing Price for Energy?

Bottom line, you must go through a market participant to procure energy through the MCPE balancing energy market. A market participant is simply a retail electric provider. We are an energy consulting company and have knowledge about which electricity company is offering the best MCPE electricity prices. If you wish to obtain a competitive MCPE electric price please fill in the contact form below.

Feel free to call us at: 1-800-971-4020



Type Of Business:
Monthly Electricity Bill
Comment

MCPE is a variable electricity price for commercial and industrial businesses in Texas. The price is not just for businesses but for retail and wholesale electricity providers to buy and sell excess energy back to the Texas electric grid. ERCOT is the Electric Reliability Council of Texas and manages the Texas electricity grid. Texas businesses can’t purchase this MCPE price directly from the ERCOT grid but have to go through a licensed market participant such as a Texas retail electricity provider. The market participant will add on what is known as an adder. This adder usually increases the price by 1 – 2 cents per kWh. The MCPE price does not include TDSP charges. Transmission and Distribution Service Provider Charges are the fees and charges that are past through from the pole and wires company on your electricity bill. The TDSP charges pay for the infrastructure costs for the poles and wires as well as line losses and congestion fees. The only way to avoid paying for things like line losses and congestion is to own the infrastructure which some large industrial facilities have done. If your Texas business is a large industrial facility and you would like to look into owning the infrastructure to eliminate line loss and congestion fees then please click on our contact page and send us an email. You may also call us at 1-800-971-4020.

Common Questions about MCPE

Texas operates in a zonal electricity grid market but is slowly transitioning over to a nodal market design with the help of Accenture Consulting company. A question raised often is how an MCPE price can be higher than the highest electricity bid in the market in some instances?

MCPE as Defined by ERCOT

Market Clearing Price for Energy

The highest price associated with a Congestion Zone for a Settlement Interval for Balancing Energy deployed during the Settlement Interval. There are 96 settlement intervals a day each lasting 15 minutes at a time.

Shadow Price

The cost of an operation to effect a one (1) MegaWatt change in a constraint.

MCPE Description

The established economic theory and formulas that go into determining “The highest price associated with a Congestion Zone for a Settlement Interval for Balancing Energy deployed during the Settlement Interval” are not easy for the layman to understand. However, it doesn’t mean that the results cannot be explained in an uncomplicated way. With great but reasonable simplification of the process, the following examples advance step by step and illustrate the results in a way that’s easy to follow and understand.

Example 1

First let’s look at a simple 3-zone power balance example without congestion. The BES bid information is shown in Figure 1. To simplify the problem, we made the following assumptions:

  • 1. No Congestion constraints;
  • 2. Ramp Rate Constraints are automatically satisfied;
  • 3. Resource Plan Constraints are automatically satisfied;
  • 4. BES Electricity Bid Constraints are automatically satisfied;
  • 5. Three identical lines (A<->B,B<->C, and C<->A).

Calculation of Market Clearing Price for Energy

Pricing MCPE (Market Clearing Price for Energy)

Figure 1

The only constraint we need to solve is power balance constraint: the total amount of generation needs to match the total amount of 500 MW load in zone A (see Figure 1). As there is no congestion, the system will select bids purely based on bid price. It is obvious that the system will deploy all 200 MW from zone A, the cheapest bid in the system, and additional 300 MW from zone B, the next cheapest electricity bid in the system, to satisfy the load at zone A (see Figure 2), For 1 MW of demand increase in any zone, the system will deploy 1 MW of UBES from zone B, as it is the least-cost solution. The marginal cost of such deployment is $40/MW. Therefore, the MCPE for the whole system is $40/MW.

MCPE Calculating the Price

Figure 2

The next question is how the power flow from zone B to zone A will be distributed in the network. There are two routes the power flow can take: (1) the direct line from B to A; and (2) from zone B to zone C and then to zone A. According to Ohm’s Law, two thirds of the power will go directly from zone B to zone A, and one third will go from zone B to zone C to zone A (see Figure 3).

MCPE Deployment

Figure 3

Example 2

Now, consider the simple 3-zone power balance example with a congestion constraint on the line from zone B to zone A (see Figure 4). The BES electricity bid information remains the same as in Example 1. The assumptions for this example are:

  • 1. Flow on line B->A is limited to 175 MW;
  • 2. Ramp Rate Constraints are automatically satisfied;
  • 3. Resource Plan Constraints are automatically satisfied;
  • 4. BES Electricity Bid Constraints are automatically satisfied;
  • 5. Three identical lines (A<->B,B<->C, and C<->A).

MCPE 175 MW Line Limit

Figure 4

This time, the system cannot simply deploy all 300 MW needed to serve the load at zone A from zone B because doing so would violate the line limit. According to Ohm’s Law, 200 MW of energy would flow through B->A, while 100 MW would flow through B->C->A. As shown in Figure 5, the constraint on B->A would be violated by 25MW (200-175)=25 MW).

MCPE Calculated Flow and Deployment

Figure 5

ERCOT must re-dispatch between zone B and zone C to meet both the power balance and the congestion constraints. To do so, we must reduce the deployment from zone B and increase the deployment from zone C. According to Ohm’s Law, 1 MW less deployment from zone B will reduce power flow on B->A by 2/3 MW, while 1 MW more deployment from zone C will increase power flow from zone B to zone A by 1/3 MW. Similarly, 1 MW less deployment from zone B and 1 MW more deployment from zone C will increase the power flow on C->A by 1/3 MW. The deployment will not change power flow on line B<->C (see Figure 6)

Line Limit MCPE

Compared to the original unconstrained deployment, the system must deploy 75 MW less from zone B and 75 MW more from zone C to satisfy both: (1) the power balance constraint to serve all 500 MW of load and (2) the congestion constraint to reduce load on the line from zone B to zone A by 25 MW (see Figure 7).

MCPE Figure 7

Next, consider the calculation of Shadow Price on the line from zone B to zone A:

According to the definition of Shadow Price, ERCOT must find the cost of an operation to effect a one (a) MW change in a constraint. If we assume the line limit of B->A changes to 174 MW, we must re-dispatch to reduce the flow on B->A by one (1) MW. According to Ohm’s law, the system will decrease deployment at B by 3 MW and increase deployment at C by 3 MW to effect (reduce) 1 MW of change on B->A (see figure 8). The cost associated with re-dispatching to reduce that 1 MW flow on B->A will be [(3 MW x $50/MW) – (3 MW x $40/MWh)]/1MW=$30/MW. Therefore, the cost to relieve 1 MW flow on B->A, i.e., the Shadow Price of the congestion constraint on line B->A, is $30/MW.

MCPE Figure 8

Figure 8

Next, we calculate MCPE for each zone. Energy bid and deployment information for each zone is summarized in Figure 9. According to the definition of MCPE, we must find the highest price associated with a Congestion Zone for a Settlement Interval for Balancing Energy deployed during the Settlement Interval. This “highest price” is defined by established economic theory as the marginal price associated with serving the next 1 MW electricity demand in the zone.

MCPE Figure 9

In zone C, there is still 25 MW of generation capability remaining after the UBES deployment. The electricity bid price at zone C is $50/MW. Although additional MWs are available at zone B with a lower bid price than the bid at zone C, they cannot be deployed because doing so would cause the power flow on line B->A to increase and thus cause congestion. The next bid MW must be deployed from zone C if the demand at zone A increases by 1 MW. The highest price of deployed bids would be $50/MW. Therefore, the MCPE for C is $50/MW.

In zone B, 175 MW of generation capability remains after the UBES deployment. The electricity bid price in zone B is $40/MWh. The system will not consider the available electricity bids from zone C due to their highest electricity bid price. If the demand in zone B increases by 1 MW, the next bid MW will be deployed from zone B. Therefore, the MCPE for zone B is $40/MW.

In zone A, no generation capability remains after the UBES deployment. Any single deployment at either zone B or zone C would cause power flow on B->A to increase, violating the congestion constraint on B->A. Therefore, the system must re-dispatch Resources from both zone B and zone C to meet 1 MW of demand increase in zone A. The most economic dispatch is shown in Figure 10: increase deployment from zone C by 2 MW and decrease deployment from zone B by 1 MW. The net flow on line B-A resulting from the re-dispatch remains the same as the line limit, while the flow on C->A increases by 1 MW. Consequently, the 1 MW of electricity demand increase in zone A is: [(2 MWh x $50/MWh) – (1 MWh x $40/MWh)]/1MW=$60/MW, which becomes the MCPE for zone A.

MCPE Figure 10

Figure 10

This example shows how MCPE in a Texas zone can exceed the highest electricity bid in that zone. It also demonstrates that MCPE can even exceed the highest bid in the whole system. The phenomenon occurs when no more UBES exists in the affected zone to cover the next MW of demand. When congestion occurs, more than 1 MW of re-dispatch is needed in the other zones to serve the next MW of demand. Thus the re-dispatch cost may exceed the electricity bid price of any particular electricity bid.

As stated in the assumptions of the examples, Resource Plan Constraints, Ramp Rate Constraints and BES Bid Constraints are automatically satisfied, i.e., this paper does not consider them. However, those constraints remain important. ERCOT staff intends to write another white paper to address those constraints separately and in detail.

To learn more about MCPE and how your commercial or industrial business can take advantage of this Texas variable electricity rate please use our contact form at the top of this page to send us an email or call us at 1-800-971-4020.

Waiting to see what the market will do?


Waiting on the market

For those companies who are waiting to see what the market will do before signing on a fixed term contract there are several things to ask yourself. Do you understand why you would want to be on a fixed term electric contract in the first place?

Energy terms can be like buying insurance

Being on a fixed term energy contract is like buying insurance. You will pay a slightly higher rate but this saves you against any price spikes. If you are off contract you are usually paying a higher premium electric rate for your company. It only takes about a month staying on a premium rate to eat up any savings you would have by waiting for the rates to fall. If rates increase then your business is really in a fix.

Find an electric wholesaler that prices in MCPE

A better solution is to go ahead and work with a solid company that deals with MCPE pricing. This is basically a low variable electricity rate. It is not offered to residential customers but businesses can get on it and pay between 6 – 7 cents kwh which is what it has averaged over the last 2 years.

Converting MCPE rates to fixed

At anytime in the term of this variable rate you can convert a percentage or all of it to a fixed electric rate. Many people keep a 50% – 50% blend and others love it so much that they have their entire usage on it and never convert over. I am a believer in MCPE (Market Clearing Price for Energy) and I have found quite a few others that are on board as well. Large indusrtial and commercial facilities see enough money come to the bottom line to see the benefits.

MCPE

Looking at MCPE’s track record it is worth taking a closer look at. Basically what it comprises is a settlement index created by ERCOT that manages the grid. Electric Companies in Texas that no longer need energy they have bought or need more can settle what is left on this market. It is a function of supply and demand and the price changes every 15 minutes instead of seconds on the stock exchanges.

Variable market electric rates in Texas

Many have asked if Texas provides a good variable market rate for commercial businesses. There are some definite savings available with a market rate. The savings come in greater if you know when it’s good to go after a heat rate product and when an MCPE product would be better.

The way you determine this is by looking at the historical natural gas heat rate and seeing if the current heat rate is in a good range to lock in at. If the heat rate is at a historically high level it would be good to look at other products.

Currently the historical data on MCPE pricing is very good in comparison to Natural gas prices. Electricity rates closely follow natural gas so this correlation is not too odd to consider. MCPE has averaged a couple cents lower than the average on fixed electricity rate contracts. For now it looks like Market Clearing Price for Energy offers an advantage over heat rate products.

The Market Clearing Price for Energy is a Texas variable electricity rate that is managed by the Electric Reliability Council of Texas. ERCOT is a non profit organization that manages the Texas electric grid. ERCOT has had its corruption issues in the past but at this time everything seems to be on the up and up. The PUCT which stands for the Public Utility Commission of Texas looks for discrepancies in the MCPE index price and if they notice something it can be challenged. Some wholesale energy companies that buy and sell on the MCPE market have been fined for what the PUCT considered price manipulation. Just last year one of the big brand energy companies were fined the highest fine the PUCT has every issued at 15 million dollars. The original fine was many times more than this but the PUCT usually will lower the fine amount if the company will cooperate in the investigation and participate in explaining their actions.

The MCPE market is susceptible to electricity price manipulation sometimes with that manipulation occurring on its own simply because of the regulations involved in bidding for electricity. The wholesalers who buy and sell on this market are disproportionate in size. Because of the monopoly size of some of the power generation companies price manipulation can be easily blamed on some of these larger electricity companies. The PUCT rules and regulations may soon change to alleviate the pressure on these wholesale energy companies so that they can bid without the scare that the PUCT may fine them for an unintentional act.

Electricity in Houston Texas

Higher Electricity Costs in Houston

Houston Texas is coming up on a hot summer and with that hot weather you will see electricity rates rise with it. Why do electricity rates rise so high in the summer compared to other states? The reason is because we use a volatile energy source. Natural gas in storage is hard to keep in storage continuously at the levels we need it to generate our power. When the summer comes and the energy demand spikes we see a loss in natural gas in storage. This affects the natural gas futures which is where Retail Electric Companies go to buy and hedge their power.

Summer Weather in Houston

Residential Electric Customers can beat the higher rates

This Retail Electric Provider power is then converted into an electric rate at a higher rate and sold to consumers. To fight these type of spikes in energy a residence could insulate their home better or even buy a wind turbine if they live out in the country or in an unrestricted area that allows this. A cheaper solution would be to install an air conditioner oil additive like ICE22 or Permafrost to reduce the energy consumption by about 30%. The second cheapest solution would be to have your attic insulated. There is also a radiant barrier type of film that can be placed over each window that looks like tenting that also works very well to insulate your house. A special type of attic turbine that is powered off of solar can pull out the attic air much faster than a standard wind turbine and can further reduce the overall energy cost in your home.

Commercial business strategy to reduce energy costs

A commercial business could blend a fixed electric rate with an MCPE variable rate in order to take advantage of the energy supplier market where settlements are made. Extra energy needed to be bought and sold are on the MCPE market and over the last 2 1/2 years the MCPE market has provided Texas commercial companies with lower electric rates than a fixed price. By blending the two you can cover your exposure to a variable rate while taking advantage of this lower priced electricity market.

Never let a supposed “energy consultant” tell you that MCPE is wholesale energy giving you the impression that the electricity price is guaranteed to stay at 4 cents per kWh. You will need to add in TDSP charges which will make the price more like 6 to 7 cents per kWh. When the MCPE market spikes your 4 cent per kWh rate could go up double or triple and remain there for some time. That is why it is important to blend an MCPE price with a fixed rate to hedge against a perfect storm situation. A larger Texas business that uses a lot of electricity is usually at more risk to get on an MCPE electricity rate but a smaller company using the equivalent of a homes usage could stand to risk that type of exposure. If you are a small business and can weather the occasional MCPE price spike by paying a couple hundred more dollars for your electricity I would recommend a straight MCPE Texas electricity contract. This allows the small business to wait until fixed electricity rates have come to a bottom in the market and then convert over to a long term fixed electricity rate contract.

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