The impact of battery energy storage on Ancillary Service prices in ERCOT
Summary
TLDRThe 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
- ๐ 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.
- ๐ Historically, Ancillary Service prices in ERCOT have fluctuated with periods of volatility, indicating that price trends alone do not provide a complete picture.
- ๐ To better understand price changes, it's more insightful to compare Ancillary Service prices relative to Energy prices, using a six-month rolling average.
- ๐ 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.
- ๐ก 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.
- ๐ 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.
- ๐ The increase in battery participation, excluding Non-Spin, has reached around 70%, demonstrating a significant shift in the market dynamics.
- ๐ป The presence of more batteries in the system is leading to a downward pressure on Ancillary Service prices, as they are more cost-effective.
- ๐ 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.
- ๐ 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.
Outlines
๐ Battery Storage Impact on Ancillary Service Prices
The script discusses the unexpected trend in the ERCOT market where Ancillary Service prices have not decreased with the integration of more battery energy storage systems, contrary to conventional wisdom. Historically, these prices fluctuate with market volatility. The script suggests comparing Ancillary Service prices with Energy prices to gain a clearer understanding. It highlights a significant reduction in Responsive Reserve and Regulation Up prices when normalized against Day-Ahead Energy prices, indicating a 50% and 46% decrease from two years prior. The script attributes this trend to batteries' lower short-run marginal costs, allowing them to offer services at lower prices than thermal resources. As battery integration increases, their market share in Ancillary Services has grown from 30-40% in 2022 to approximately 55% recently, or around 70% excluding Non-Spin resources. This growth in battery participation is identified as the primary factor exerting downward pressure on Ancillary Service prices.
Mindmap
Keywords
๐กAncillary Service
๐กERCOT
๐กBattery Energy Storage Systems
๐กResponsive Reserve
๐กRegulation Up
๐กDay-Ahead Energy Prices
๐กShort-run Marginal Costs
๐กThermal Resources
๐กMarket Share
๐กNon-Spin
๐กDownward Pressure
Highlights
Conventional wisdom suggests that the introduction of more battery energy storage systems should decrease Ancillary Service prices, but this hasn't been the case in ERCOT.
Historical data shows that Ancillary Service prices in ERCOT have fluctuated with periods of volatility rather than consistently decreasing.
Examining Ancillary Service prices in isolation does not provide a complete picture of the market dynamics.
A more insightful approach is to analyze the ratio of Ancillary Service prices to Energy prices to understand market trends.
The six-month rolling average of Responsive Reserve and Regulation Up prices, when compared to Day-Ahead Energy prices, reveals significant changes.
Responsive Reserve and Regulation Up prices, which are predominantly influenced by batteries, have seen a substantial decrease of 50% and 46% respectively from two years ago.
The lower short-run marginal costs of batteries enable them to offer Ancillary Services at competitively lower prices compared to thermal resources.
The increasing presence of batteries in the Ancillary Service market has led to a significant market share shift, from 30-40% in 2022 to approximately 55% in recent months.
If Non-Spin is excluded, the market share occupied by batteries in Ancillary Services has reached around 70%.
The growing integration of battery systems is exerting downward pressure on Ancillary Service prices, challenging the conventional market dynamics.
The transcript provides a detailed analysis of how the increase in battery energy storage systems affects the Ancillary Service market in ERCOT.
The study of Ancillary Service pricing relative to Energy prices offers a nuanced understanding of market trends beyond surface-level observations.
The transcript highlights the transformative impact of battery storage on the Ancillary Service market, indicating a significant shift in pricing structures.
The decrease in Ancillary Service prices is attributed to the competitive advantage of battery systems with lower operational costs.
The market share data illustrates the rapid adoption and integration of battery systems in the Ancillary Service sector.
The transcript concludes with a commitment to monitor and update on the evolving dynamics of the Ancillary Service market as influenced by battery energy storage systems.
Transcripts
Conventional wisdom suggests that Ancillary Service prices
decrease - as more battery energy storage systems come online.
But, in ERCOT, this hasn't necessarily happened -
at least not at face value.
Historically, Ancillary Service prices have risen and fallen in line with
periods of higher and lower volatility in ERCOT.
Because of this, looking at Ancillary Service prices on their own doesn't
really tell the full story.
It makes more sense to consider how they've changed relative to
Energy prices.
Let's take a look at the six-month rolling average of
Responsive Reserve and Regulation Up prices -
and then divide them by the equivalent Day-Ahead Energy prices.
When we do this,
we see that prices for Responsive Reserve and
Regulation Up - the two services most dominated by
batteries - have decreased by 50% and 46% from their
equivalent value two years ago.
So, why is this happening?
With lower short-run marginal costs,
batteries are able to offer into Ancillary Services at
lower prices than thermal resources.
And, as more batteries have come online,
they've begun to take up a larger proportion of all
Ancillary Service markets - from around 30% to 40% in
2022, to about 55% in recent months (or
around 70%, if we exclude Non-Spin).
This all shows how more batteries on the system
ultimately leads to downward pressure on Ancillary Service prices.
Thanks for watching -
and we'll be sure to keep you updated as things evolve.
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