Market saturation, intelligent optimisation, smarter development: The future of the ERCOT market

With over 7GW of large-scale battery energy storage systems (BESS) online in Texas, where system operator ERCOT runs the grid, the state is the second biggest storage market in the US after California (which has around double that).

However, some forecast that ERCOT could overtake California for BESS deployments, with a rate of installations causing market saturation and subsequent hefty falls in ancillary service prices.

In 2023, discussions were about when that would come while in 2024 they were about the extent to which it was already happening. Now, the question is how to adapt, which industry experts on the ‘Current Events: Texas Storage Economics’ panel on Day One discussed at length, covered below.

ERCOT market saturation and price formation

Moderator Quentin Draper-Scrimshire, CEO of market analytics firm Modo, started out by asking the panel what the estimated 5-10GW of additional large-scale BESS coming online in ERCOT over the next year or so would mean for the market.

Casey Keller, founding partner of developer, investor and optimiser Caerus Commodities said that clearly more BESS will drive down ancillary service prices and make intelligent optimisation strategies more important.

“In general, batteries are sort of cannibalistic on revenues, and the more batteries the worse it is. We’ve already started to see that in a lot of ways, with the decline in ancillary service revenues, as those are shallow markets, 4-5GW each. So once we have more than that volume of storage assets bidding into those products, it obviously drives pricing down,” she said.

“The more assets that come online, the more percentage-wise battery storage assets will derive their revenue from actual energy arbitrage. So it becomes more and more important that you actually capture those price spikes when they happen through intelligent optimisation.”

Building on this point, Christian Hofer, VP market operations for BESS developer and owner-operator Key Capture Energy (KCE), said that operators will become even more reliant on their forecasting.

“How are you able to forecast those spikes? Are you able to determine when the load is not going to come in so the spike doesn’t happen, or when transmission congestion is going to be hyper localised so that you’ll be able to take advantage of price separation, things like that?”

In response to a follow-up question from Draper-Scrimshire, Hofer said that game theory comes into play when discussing the dispatch of units, with large-scale BESS are significantly affecting price formation in ERCOT. The example he gave also pointed to the limitations of a fundamentals approach to market forecasts.

Hofer: “We are seeing price spikes happening in real time now that would never have happened in the past, because batteries are charging up to be able to discharge during the peak period. So there’s a lot of interesting conversations around the importance of fundamental models versus sort of these new AI models that are much more focused on what’s been happening in the last, say, two or three days.”

Keller also pointed out that BESS is significantly affecting how gas peaker plants operate on the Texas grid too. Previously, day-wide positive electricity prices meant gas generators could stay online all day for large parts of the year, but BESS has changed that.

Asset management

So what does this all mean for asset management? The discussion turned to Michelle Duiett senior VP asset management, operations and maintenance for Austin-headquartered solar and storage owner-operator Treaty Oak Clean Energy.

“I think there’s two key answers to that. The first is that our future planning and our modeling up front has a lot more rigor to it. There are different levels of conservativeness, not only for us, but also for our lenders and our investors and the projects. So as we look forward to what will this look like in 20 years, the model looks different than it did two years ago, than it did five years ago,” Duiett said.

“And then the second piece is the criticality of our trading functions, of our day-ahead, real-time monitoring of the most recent information. That forecasting becomes much more important as we move forward throughout the year, throughout the quarters and re-forecasting that over a five and 10-year period.”

Developing assets

Kona Energy, meanwhile, is more of a pure-play developer, typically selling its projects to long-term investors closer to ready-to-build (RTB) stage, initially on the grid in Great Britain (GB) but making moves into the US now. Panellist Tim Turner heads up project development and strategy for the firm, and explained that developing in ERCOT now means identifying chronic constraints in the grid, similarly to in the UK.

“We often give the example in the UK of having massive amounts of offshore wind up in Scotland and a lot of the demand in the south, which drives very significant constraints on basically two 400 KV copper cables, which run down the spine of the country. That creates really interesting dynamics and and significant problems for the system operator to solve in the UK market, and there are similarities in the ERCOT market as well,” Turned said.

“With a lot of wind generation out in West Texas and also now a lot of new solar penetration coming through in the southern parts too, it’s really a case of looking beyond those shallow ancillary service markets and thinking about where are the points in the network which are real headaches for the system operator to solve, and thinking about how you can site the batteries at those locations, and then work on the system design to make sure that they are optimised to provide the maximum amount of support to alleviate some of those thermal constraints.”

“There’s a lot of kind of grid analysis that goes into this. But then there’s also trying to find locations where you’ve got a good amount of spread protection so that you know that you’ve got a robust kind of arbitrage case for the battery going forward.”

Real-Time Co-optimisation Plus Batteries (RTC+B)

The panel then moved on to ERCOT’s introduction of what it calls ‘Real-Time Co-optimisation Plus Batteries’ (RTC+B).

RTC+B is essentially, Hofer explained, a shift from ancillary products being system-wide to them being dispatched on a locational basis for every five minutes.

“That’s a fundamental change in the way that not only people operate their units in the real time, but also how they understand the relationship between the their day ahead and real time commitments,” he added.

Tom Thunell, co-founder and COO of optimisation platform Tyba Energy, who spoke in Dallas on a separate panel, told Energy-Storage.news in the lead up to the event that RTC+B was a ‘foundational shift’ in how BESS would be operated in the ERCOT market.

Energy-Storage.news will be publishing a piece focused on the RTC+B reform in the coming weeks.