Special Report: ERCOT: Are Changes in the Wind?
We recently sent out the informal RSI below to some trusted trading partners, colleagues and peers in a search for transparency for a changing ERCOT market. Low prices have tainted our risk outlook and we need to get on an even keel. There are two components to responses, the first being Real-Time prices (LMP) as they have moved up fairly quickly; the second is directed to resource adequacy, ancillary services, and how “energy-only” models (Texas) compare to other deregulated jurisdictions’ “capacity” models.
Since the aftermath of the February freeze, the ways some things perform is unclear. Specifically, how does real-time pricing (LMP) behave in different market conditions? Noting the range of prices, what triggers dramatically higher prices such as seen in the first days of November? What are the cap(s)?
Additionally, where are ancillary services heading in regards to pricing and options of locking them in retail adders as was common practice from virtually all REPs we deal with? We’ve heard that some considerations are to have them defined in bilateral trades, unique to that specific transaction. The rise of third-party management companies that design backup generation and related services may be the rise of a new business, one that we need to understand.
Any clarity you might provide will be great. Thanks in advance.
Real-Time pricing (Locational Marginal Price or LMP) went ballistic during the February freeze with prices beyond most industry expectations. Situations that weren’t foreseen happened and were addressed in accordance with rules and protocols set by ERCOT. The most dramatic was the increase to price caps ($9,000/MWh) and remaining there for virtually the whole week. When in doubt, following the rules are a response, which is what occurred much to the detriment of end-users and REPs. There was really no choice but to stomach the pain and then correct shortcomings in the future. This is an ongoing discussion.
Later, on June 14th, an adequacy concern prompted ERCOT to caution usage amounts to avoid more outages. Fortunately, no impact was felt yet generation tightened (read this as price rise). The chart below depicts the June spike with firming going forward.