ERCOT Storage: The Future Operating Model?

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byEnverus

Calgary, Alberta (August 9, 2022) — Enverus Intelligence Research (EIR), a subsidiary of Enverus, the leading global energy data analytics and SaaS technology company, has released a report exploring the future state of the ancillary services markets in the Electric Reliability Council of Texas (ERCOT).

From managing weather swings to energy outages to fluctuating prices, energy producers, utilities and consumers throughout the U.S. have astutely been watching ERCOT and its next steps. Power systems typically have mismatches between the load forecast, the actual load, the energy traded and the energy produced for every hour and through the day. Ancillary services are the tools used by system operators to balance generation and load in real time, taking care of these forecasting errors.

EIR analysts now expect these markets to saturate with energy storage, displacing gas and coal generators as the marginal bidders and lowering the price for all ancillary services. The report presents a monthly forecast for all ancillary services prices, settling at the average expected marginal cost for storage assets by the end of 2023.

“We expect ancillary services prices to fall 35%-65% from 2021 levels as storage assets become the marginal bidder for these services later this year,” said Ryan Luther, report author and senior vice president of Enverus Intelligence Research.

“We calculate the average annual gross profit for storage assets pursuing an ancillary service strategy will fall ~50% from 2021 to 2023 if ancillary service prices decline according to our forecast. Ancillary strategy profits should still outperform a pure arbitrage strategy and we expect storage assets to prefer ancillary service strategies. We expect falling ancillary services prices will force many coal and gas assets into early retirement at the detriment of grid reliability. We believe ERCOT urgently needs to establish a new market for dispatchable reserves to preserve grid reliability.”

Key takeaways from the report:

  • When storage assets become the marginal bidder of ancillary service markets, EIR analysts expect their bids to move from near zero to attempt to cover the assets’ cost of capital and, if deployed, at least break even on its operating cost.
  • EIR analysts expect little to no participation of wind assets in Regulation Down services since their bids would need to at least compensate for lost production tax credit revenue and potentially offset the cost of undersupplying power for PPA agreements.
  • EIR analysts expect falling ancillary services price will force many coal and gas assets into early retirement at the detriment of grid reliability.
  • EIR analysts believe there is a need in ERCOT to establish a new market for dispatchable reserve to preserve its reliability, such as its proposed Backstop Reliability Service.
Graph Showing Forecast of Ancillary Service Requirements and Storage Project Capacity
Storage assets will soon have enough capacity in ERCOT to service the entire ancillary service requirements.

Members of the media should contact Jon Haubert to schedule an interview with one of Enverus’ expert analysts.

About Enverus
Enverus is the leading energy SaaS company delivering highly-technical insights and predictive/prescriptive analytics that empower customers to make decisions that increase profit. Enverus’ innovative technologies drive production and investment strategies, enable best practices for energy and commodity trading and risk management, and reduce costs through automated processes across critical business functions. Enverus is a strategic partner to more than 6,000 customers in 50 countries. Learn more at Enverus.com.

About Enverus Intelligence Research
Enverus Intelligence Research, Inc. is a subsidiary of Enverus and publishes energy-sector research that focuses on the oil and natural gas industries and broader energy topics including publicly traded and privately held oil, gas, midstream and other energy industry companies, basin studies (including characteristics, activity, infrastructure, etc.), commodity pricing forecasts, global macroeconomics and geopolitical matters.  Enverus Intelligence Research, Inc. is registered with the U.S. Securities and Exchange Commission as an investment adviser.

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