The impact of battery energy storage on Ancillary Service prices in ERCOT

Summary

The video script explores the impact of battery energy storage systems on Ancillary Service (AS) prices in ERCOT. Contrary to conventional wisdom, AS prices have not uniformly decreased with the integration of more batteries. Instead, a comparative analysis with energy prices reveals a significant 50% and 46% drop in Responsive Reserve and Regulation Up prices, respectively, over the past two years. The script attributes this trend to batteries' lower short-run marginal costs, which enable them to undercut thermal resources in the AS market, increasing their market share from 30-40% in 2022 to approximately 55% recently, exerting downward pressure on AS prices.

Takeaways

• 🔋 Conventional wisdom is that the introduction of more battery energy storage systems should decrease Ancillary Service prices, but this hasn't happened in ERCOT as expected.
• 📈 Historically, Ancillary Service prices in ERCOT have fluctuated with periods of volatility, indicating that price trends alone do not provide a complete picture.
• 📊 To better understand price changes, it's more insightful to compare Ancillary Service prices relative to Energy prices, using a six-month rolling average.
• 📉 Prices for Responsive Reserve and Regulation Up, which are primarily provided by batteries, have seen significant reductions of 50% and 46% respectively from their values two years ago.
• 💡 The decrease in prices is attributed to the lower short-run marginal costs of batteries, allowing them to offer services at lower prices compared to thermal resources.
• 📈 As more batteries have been integrated into the market, their proportion in Ancillary Service markets has increased, from 30% to 40% in 2022 to about 55% in recent months.
• 🚀 The increase in battery participation, excluding Non-Spin, has reached around 70%, demonstrating a significant shift in the market dynamics.
• 🔻 The presence of more batteries in the system is leading to a downward pressure on Ancillary Service prices, as they are more cost-effective.
• 🌐 The script suggests that the integration of battery energy storage is changing the landscape of Ancillary Services in ERCOT, with potential long-term impacts on pricing.
• 👀 The speaker promises to keep the audience updated on how these market trends evolve over time, indicating ongoing monitoring of the situation.

Q & A

What is the conventional wisdom regarding Ancillary Service prices in relation to battery energy storage systems?

The conventional wisdom suggests that Ancillary Service prices should decrease as more battery energy storage systems come online.

Has the conventional wisdom held true in the case of ERCOT?

In ERCOT, the conventional wisdom hasn't necessarily held true at face value, as Ancillary Service prices have historically risen and fallen with periods of higher and lower volatility.

Why is it suggested to look at Ancillary Service prices relative to Energy prices?

Looking at Ancillary Service prices alone doesn't tell the full story, so it's recommended to consider how they've changed relative to Energy prices for a more comprehensive understanding.

What is the significance of the six-month rolling average of Responsive Reserve and Regulation Up prices divided by Day-Ahead Energy prices?

This calculation provides a clearer picture of how the prices for Ancillary Services, particularly those dominated by batteries, have changed over time in relation to Energy prices.

How have the prices for Responsive Reserve and Regulation Up services changed in the past two years?

The prices for Responsive Reserve and Regulation Up services have decreased by 50% and 46%, respectively, from their equivalent value two years ago.

What role do batteries play in Ancillary Services, and how does it affect pricing?

Batteries, with their lower short-run marginal costs, are able to offer into Ancillary Services at lower prices than thermal resources, leading to a decrease in service prices as more batteries come online.

What has been the trend of battery participation in Ancillary Service markets?

Batteries have been taking up a larger proportion of all Ancillary Service markets, increasing from around 30% to 40% in 2022 to about 55% in recent months, or around 70% if Non-Spin is excluded.

What is the impact of more batteries on the system on Ancillary Service prices?

The increase in batteries on the system leads to downward pressure on Ancillary Service prices due to their ability to offer services at lower costs compared to traditional thermal resources.

Why is it important to monitor the evolution of Ancillary Service prices and battery participation?

Monitoring these changes is important as it provides insights into the effectiveness of battery energy storage systems in the market and their impact on the overall energy landscape.

What does the future hold for Ancillary Service prices as more battery energy storage systems are integrated into the grid?

The future of Ancillary Service prices may continue to see downward pressure as the integration of more battery energy storage systems increases, potentially leading to further price reductions.

How can viewers stay updated on the developments in Ancillary Service prices and battery integration?

Viewers can stay updated by following the channel or platform that provided the script, as they have promised to keep the audience informed as things evolve.