Capacity Market Debate

Texas has no capacity market. PJM has one that costs ratepayers $10+ billion per year. Both grids keep the lights on most of the time. Texas had Winter Storm Uri. PJM had no comparable failure. The capacity market debate is whether paying generators to exist (rather than just to produce) is worth the cost, and neither side has a clean answer.

The case for. Energy-only markets (Texas/ERCOT) pay generators only when they produce. This provides no revenue for a gas plant sitting idle 95% of the year waiting for the rare extreme event. Capacity markets pay that plant to be available, ensuring enough generation exists to meet peak demand plus a reserve margin. PJM's capacity market procures 15-20% more capacity than expected peak demand.

The case against. Capacity markets are expensive and may suppress innovation. Paying incumbents to exist protects old gas plants from retirement, slowing the transition to cheaper renewables-plus-storage. Texas's energy-only market, by allowing scarcity pricing (up to $5,000/MWh), creates powerful incentives for any resource that can deliver during peaks, including batteries, demand response, and new technologies.

Did Winter Storm Uri prove that Texas needs a capacity market?

It proved Texas needed weatherization, not necessarily capacity payments. The failures during Uri were mostly operational (frozen gas wells, frozen instruments) not structural (insufficient total capacity). A capacity market would not have prevented frozen equipment. But the event strengthened the political case for capacity payments because the public does not distinguish between "not enough plants" and "plants that could not start."

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