Starting a new thread - so I get this email yesterday from an energy publication writing an article on August and their question in short is -
Do you think high wholesale energy prices affected industrial output in the state - they cited the FED article linked here -
https://www.dallasfed.org/research/surveys/tmos/2023/2308?utm_source=MarketingCloud&utm_medium=email&utm_campaign=23.08.28+TMOS&utm_content=https%3a%2f%2fwww.dallasfed.org%2fresearch%2fsurveys%2ftmos%2f2023%2f2308
Going in to summer ERCOT boasted roughly a 25% reserve margin - this is mainly due to solar during max production hours being around 13,500MW. If memory serves me correctly it was sub 1,000 in 2019 when we had our last summer crisis.
ERCOT implemented a new ancillary service where it was pitched it would be provided by batteries - and this was a reasonable idea actually. The pitch was they would buy 2600MW of this ECRS service and hold it for major renewable "misses" or solar ramp down at night. This was the pitch, and on face honestly we needed megawatts for solar ramp down - you can see the other thread I started stating that when it's max heat outside we don't have the thermal capacity for HE 19-21 during solar ramp down. We absolutely mathematically do not have the capacity to meet demand. So this service in theory would be new batteries coming on-line because they are currently being installed. To pay for this ancillary service (2600MW) they would charge the whole-sale market (all the consumers) for this product. Reasonable idea. If they are rechargeable batteries then you'd expect since the consumer is paying for them - you'd think they'd deploy them daily because they are rechargeable and paid for right? Similar to pump storage, the market thought ERCOT would deploy these services liberally.
https://www.ercot.com/news/release/2023-06-12-ercot-adds-new
But how it played out is much much different in reality. When the wholesale market had to purchase these ancillaries - the largest buyers are the largest loads. So you have NRG, Vistra, all the utilities, etc. carrying this service on their generators. Know what these megawatts were doing before ECRS? They were being dispatched for consumption - in the ERCOT pricing mechanism known as SCED. The integrated generators aren't going out and buy this service they will provide it themselves.
It's been 15 years since I took the NERC exam so I am rusty, but there are NERC qualified ancillary services to promote the health of the grid. The number 1 item for grid quality is the amount of generation on-line verses the load - and once the generation is online the best mechanism to solve is SCED - because SCED produces the most efficient price to balance supply, demand, and congestion. When you take megawatts out of SCED and large lump sums then SCED no longer produces the most optimal outcome. This is rather simple - and since ECRS's qualifications are 10 minute start up - you are taking best in class megawatts that for the last 30 years have balanced the system in high demand times and setting them aside - outside of dispatch - wait "just in case."
The argument is "but RELIABILITY" which is legitimate - so you need to pay generation to be available to be there for when the state needs it - ok. During peak periods the price already determines that all generation should be on-line and available right? If you have to additionally pay for generation to be online or available - well it seems like you are double paying for something that was already paid for. So ECRS should be more important in lower load times when generators are less likely to respond to price for 1 hour or the day or something like that but when gas is $2.25 and power prices are in the hundreds of dollars - every generator in the state is economically extremely profitable.
But it gets even better - so these megawatts that were producing power for consumption for years is now being with-held from dispatch and SCED - so what do you think happened to the price of ECRS and the price of whole-sale power this summer? Well you guessed it - prices absolutely daisy chained to levels never seen before for a healthy grid.
So PRC is "Physical Responsive Reserve" which is essentially the grid health - ERCOT's definition - "A representation of the total amount of system wide On-Line capability that has a high probability of being able to quickly respond to system disturbances." So you'll love this, in 2019 PRC used to have to get sub 3000 to print scarcity and often times near 2500-2300MW to print scarcity. This summer it often times it was 6000MW level. Know what the difference was? Well, it's easy - you were paying for this new service to take megawatts out of dispatch in the name of "reliability" and set them aside. So now, with the grid being extremely healthy we print scarcity pricing. Now, this issue with this is - when SCED cannot determine the proper price - is a fall out of economic data like the Dallas FED insinuates. Every time prices to to $500 or higher - we have demand response. That is something producing economics for the state turning off. You also have set-aside diesel gens that are worse off for the environment turning at small locations to reduce their economic impact. I am sure I am missing a ton of stuff here - but an incorrect price is a HUGE issues for the state.
For months summer futures markets were priced at $80. Forward curve for the prediction of the outcome of summer. It was believed that ECRS would be new batteries and generally thought that by everyone. The first week of implementation - I saw fake pricing arrive at our door steps so we arranged a call with ERCOT. I tell ERCOT that it's generation selling this product not battery - and ERCOT tells me no / that's not right. They look in to it come back and say ok / you are right. They also agree that price formation looks incorrectly too high - and they think that ECRS is clearing too high in the market too. This is in June about the 3-4th day it was running - the solve for this is purchasing the service then during high demand times either buying less of this product because it should be paid to be online by regular economics or deploying the megawatts in SCED based on a certain metric so it's not causing pricing distortions.
ERCOT then goes on to admit that ECRS is causing congestion in a WMS meeting (meaning the location of this now newly non-dispatchable generation) is causing SCED to not function and also cause power line flow issues.
So summer went from trading $80 - to $200 for July and $450-$500 for August - the highest priced energy contracts that I have ever seen with a 25% reserve margin. It looks like August will settle $300 roughly. Of which PRC was sub 4000 I bet you 5 days or less this summer and the grid was super healthy. Summertime sub 4000 PRC is nothing it happens every summer - but price caps do not follow. ERCOT economically blew up the grid - they named blanket statement everything with "reliability" but meanwhile all this chaos bought none.
And the kicker, is that often times during congestion and during price scarcity they refused to deploy ECRS and just sat on these megawatts after you paid for them. When they would deploy them - you guessed it - they crushed price because SCED functioned. Rates should be about 8 cents across Texas and I just looked and 12 month new plans are 13-16 cents. Right up the ass ladies and gentlemen.
I need to stop here but I'll try to provide some more data later or more comments.
And I'll say this, this is the largest scam I have ever seen in the energy business I think this one is worse than ENRON because you paid to do it - you literally paid for the grid to with-hold megawatts. Oh, and guess what happened to ECRS prices? They blew out all summer because those power plants the owners used to use to meet demand were locked up. So those providers didn't want to sell the stuff and become more short so as energy prices became fake and scarcity so did ECRS prices in a feedback loop.
Do you think high wholesale energy prices affected industrial output in the state - they cited the FED article linked here -
https://www.dallasfed.org/research/surveys/tmos/2023/2308?utm_source=MarketingCloud&utm_medium=email&utm_campaign=23.08.28+TMOS&utm_content=https%3a%2f%2fwww.dallasfed.org%2fresearch%2fsurveys%2ftmos%2f2023%2f2308
Going in to summer ERCOT boasted roughly a 25% reserve margin - this is mainly due to solar during max production hours being around 13,500MW. If memory serves me correctly it was sub 1,000 in 2019 when we had our last summer crisis.
ERCOT implemented a new ancillary service where it was pitched it would be provided by batteries - and this was a reasonable idea actually. The pitch was they would buy 2600MW of this ECRS service and hold it for major renewable "misses" or solar ramp down at night. This was the pitch, and on face honestly we needed megawatts for solar ramp down - you can see the other thread I started stating that when it's max heat outside we don't have the thermal capacity for HE 19-21 during solar ramp down. We absolutely mathematically do not have the capacity to meet demand. So this service in theory would be new batteries coming on-line because they are currently being installed. To pay for this ancillary service (2600MW) they would charge the whole-sale market (all the consumers) for this product. Reasonable idea. If they are rechargeable batteries then you'd expect since the consumer is paying for them - you'd think they'd deploy them daily because they are rechargeable and paid for right? Similar to pump storage, the market thought ERCOT would deploy these services liberally.
https://www.ercot.com/news/release/2023-06-12-ercot-adds-new
But how it played out is much much different in reality. When the wholesale market had to purchase these ancillaries - the largest buyers are the largest loads. So you have NRG, Vistra, all the utilities, etc. carrying this service on their generators. Know what these megawatts were doing before ECRS? They were being dispatched for consumption - in the ERCOT pricing mechanism known as SCED. The integrated generators aren't going out and buy this service they will provide it themselves.
It's been 15 years since I took the NERC exam so I am rusty, but there are NERC qualified ancillary services to promote the health of the grid. The number 1 item for grid quality is the amount of generation on-line verses the load - and once the generation is online the best mechanism to solve is SCED - because SCED produces the most efficient price to balance supply, demand, and congestion. When you take megawatts out of SCED and large lump sums then SCED no longer produces the most optimal outcome. This is rather simple - and since ECRS's qualifications are 10 minute start up - you are taking best in class megawatts that for the last 30 years have balanced the system in high demand times and setting them aside - outside of dispatch - wait "just in case."
The argument is "but RELIABILITY" which is legitimate - so you need to pay generation to be available to be there for when the state needs it - ok. During peak periods the price already determines that all generation should be on-line and available right? If you have to additionally pay for generation to be online or available - well it seems like you are double paying for something that was already paid for. So ECRS should be more important in lower load times when generators are less likely to respond to price for 1 hour or the day or something like that but when gas is $2.25 and power prices are in the hundreds of dollars - every generator in the state is economically extremely profitable.
But it gets even better - so these megawatts that were producing power for consumption for years is now being with-held from dispatch and SCED - so what do you think happened to the price of ECRS and the price of whole-sale power this summer? Well you guessed it - prices absolutely daisy chained to levels never seen before for a healthy grid.
So PRC is "Physical Responsive Reserve" which is essentially the grid health - ERCOT's definition - "A representation of the total amount of system wide On-Line capability that has a high probability of being able to quickly respond to system disturbances." So you'll love this, in 2019 PRC used to have to get sub 3000 to print scarcity and often times near 2500-2300MW to print scarcity. This summer it often times it was 6000MW level. Know what the difference was? Well, it's easy - you were paying for this new service to take megawatts out of dispatch in the name of "reliability" and set them aside. So now, with the grid being extremely healthy we print scarcity pricing. Now, this issue with this is - when SCED cannot determine the proper price - is a fall out of economic data like the Dallas FED insinuates. Every time prices to to $500 or higher - we have demand response. That is something producing economics for the state turning off. You also have set-aside diesel gens that are worse off for the environment turning at small locations to reduce their economic impact. I am sure I am missing a ton of stuff here - but an incorrect price is a HUGE issues for the state.
For months summer futures markets were priced at $80. Forward curve for the prediction of the outcome of summer. It was believed that ECRS would be new batteries and generally thought that by everyone. The first week of implementation - I saw fake pricing arrive at our door steps so we arranged a call with ERCOT. I tell ERCOT that it's generation selling this product not battery - and ERCOT tells me no / that's not right. They look in to it come back and say ok / you are right. They also agree that price formation looks incorrectly too high - and they think that ECRS is clearing too high in the market too. This is in June about the 3-4th day it was running - the solve for this is purchasing the service then during high demand times either buying less of this product because it should be paid to be online by regular economics or deploying the megawatts in SCED based on a certain metric so it's not causing pricing distortions.
ERCOT then goes on to admit that ECRS is causing congestion in a WMS meeting (meaning the location of this now newly non-dispatchable generation) is causing SCED to not function and also cause power line flow issues.
So summer went from trading $80 - to $200 for July and $450-$500 for August - the highest priced energy contracts that I have ever seen with a 25% reserve margin. It looks like August will settle $300 roughly. Of which PRC was sub 4000 I bet you 5 days or less this summer and the grid was super healthy. Summertime sub 4000 PRC is nothing it happens every summer - but price caps do not follow. ERCOT economically blew up the grid - they named blanket statement everything with "reliability" but meanwhile all this chaos bought none.
And the kicker, is that often times during congestion and during price scarcity they refused to deploy ECRS and just sat on these megawatts after you paid for them. When they would deploy them - you guessed it - they crushed price because SCED functioned. Rates should be about 8 cents across Texas and I just looked and 12 month new plans are 13-16 cents. Right up the ass ladies and gentlemen.
I need to stop here but I'll try to provide some more data later or more comments.
And I'll say this, this is the largest scam I have ever seen in the energy business I think this one is worse than ENRON because you paid to do it - you literally paid for the grid to with-hold megawatts. Oh, and guess what happened to ECRS prices? They blew out all summer because those power plants the owners used to use to meet demand were locked up. So those providers didn't want to sell the stuff and become more short so as energy prices became fake and scarcity so did ECRS prices in a feedback loop.