ERCOT Congestion and Congestion Revenue Rights (CRDs)
Key Takeaway
How transmission congestion creates price differences between ERCOT nodes, and how Congestion Revenue Rights (CRDs) are used to hedge location basis risk.
Quick Answer
Transmission congestion creates price differences between ERCOT nodes when power flow hits thermal, stability, or voltage limits. Congestion Revenue Rights (CRDs) are financial instruments that hedge the congestion cost between two settlement points.
What Causes Congestion
When more power needs to flow on a transmission path than its rating allows, ERCOT re-dispatches generation — backing down cheap generators on one side and dispatching expensive generators on the other. This creates a price differential.
CRDs
A CRD from source A to sink B pays the holder when congestion causes B's price to exceed A's. Generators buy CRDs to hedge the risk that their resource node price falls below the hub price. Loads buy CRDs to hedge load zone premiums.
Chronic Congestion
- West Texas → load centers — High wind, limited export transmission
- South Texas → Houston — Nuclear and wind surplus, thermal limits
Shadow Prices
The marginal cost of relaxing a constraint by 1 MW. High shadow prices indicate severe congestion.
Frequently Asked Questions
A financial instrument hedging congestion between two settlement points. The holder receives congestion rent when power flows in the CRD's direction.
Abundant wind generation exceeds local load and transmission export capacity, creating excess supply that depresses prices.
The marginal cost of relaxing a binding transmission constraint by 1 MW — indicates the severity of congestion.