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

Modo Energy

19 Jul 202401:36

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

🔋 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.

Outlines

00:00

🔋 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

💡Ancillary Service

Ancillary Service refers to the additional services that support the main electricity supply. These services are crucial for maintaining grid reliability and stability. In the video, it is mentioned that the prices of Ancillary Services have not decreased as expected with the increase in battery energy storage systems in ERCOT. This is a key point as it challenges the conventional wisdom and sets the stage for further discussion on the impact of battery storage on energy markets.

💡ERCOT

ERCOT stands for Electric Reliability Council of Texas. It is the independent system operator for the majority of the Texas power grid. The script discusses how the prices of Ancillary Services in ERCOT have not decreased as expected with the integration of more battery energy storage systems, highlighting a deviation from typical market responses.

💡Battery Energy Storage Systems

Battery Energy Storage Systems (BESS) are technologies that store electrical energy and can release it when needed. They are increasingly being used to manage grid demand and supply. The video script suggests that despite the increased deployment of BESS, the prices of Ancillary Services in ERCOT have not decreased as conventionally expected, indicating a complex interplay between technology adoption and market dynamics.

💡Responsive Reserve

Responsive Reserve is a type of Ancillary Service that provides additional power to the grid when there is a sudden drop in supply or an unexpected increase in demand. The script mentions that the price of Responsive Reserve, which is significantly influenced by battery storage, has decreased by 50% from its value two years ago. This highlights the impact of battery storage on the cost and availability of this critical service.

💡Regulation Up

Regulation Up is another Ancillary Service that helps maintain the balance between power supply and demand by adjusting the output of generators. The script indicates that the price for Regulation Up has decreased by 46% from its value two years ago, suggesting that the integration of battery storage is affecting the cost structure of this service.

💡Day-Ahead Energy Prices

Day-Ahead Energy Prices refer to the prices at which energy is traded in the wholesale market for delivery the following day. The script uses these prices as a benchmark to compare the changes in Ancillary Service prices, showing a relative decrease in the cost of services like Responsive Reserve and Regulation Up.

💡Short-run Marginal Costs

Short-run Marginal Costs are the additional costs incurred when producing one more unit of a good or service. In the context of the video, batteries have lower short-run marginal costs compared to thermal resources, which allows them to offer Ancillary Services at lower prices. This is a key factor in the observed decrease in service prices.

💡Thermal Resources

Thermal Resources, such as coal, natural gas, and nuclear power, are traditional sources of electricity generation. The script contrasts these with battery storage systems, noting that batteries can offer Ancillary Services at lower prices due to their lower marginal costs, thereby affecting the market dynamics.

💡Market Share

Market Share refers to the proportion of a market that a particular product or service occupies. The script discusses how battery storage systems have increased their market share in the Ancillary Service markets, moving from 30% to 40% in 2022 to about 55% in recent months. This shift illustrates the growing influence of battery storage on the energy market.

💡Non-Spin

Non-Spin is a term used in the context of energy markets to refer to resources that do not provide spinning reserve, which is a type of Ancillary Service. The script mentions that if Non-Spin resources are excluded, the market share of battery storage in Ancillary Services could be as high as 70%, indicating a significant presence of battery storage in the market.

💡Downward Pressure

Downward Pressure refers to a situation where the forces or factors are pushing prices or values downwards. In the video, it is mentioned that the increased presence of battery storage systems on the system leads to downward pressure on Ancillary Service prices, demonstrating the impact of technology on market prices.

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.