When record-low temperatures descended on Texas in January, battery energy storage systems played a key role in ensuring the ERCOT grid was able to navigate the storm.
The extreme weather conditions were preceded by extreme forecasts. ERCOT’s day-ahead load forecast indicated that system demand would rise as high as 89 GW between 7 and 8 AM on January 16th.
This would have been the record demand in ERCOT by nearly 3.5 GW. Naturally, this resulted in projections for very low available capacity.
Ultimately, actual demand was significantly lower than what was forecasted. So, how did this impact overall battery energy storage revenues? And how did it affect which markets those revenues came from?
Revenues during Storm Heather were significant
Across the two coldest days of Winter Storm Heather, battery energy storage systems in ERCOT earned an average of more than $6,000/MW for providing crucial flexibility to the grid.
Despite the fact that system demand was significantly lower than the forecast, there were still high prices during the winter storm. In fact, January 15th and 16th of 2024 both would have ranked in the top 21 highest revenue days of 2023.
Revenues looked a little different in comparison to 2023
Battery energy storage systems earned less than 7% of their revenues via Energy Arbitrage during Winter Storm Heather.
This was in contrast to 2023 as a whole. Last year, the proportion of revenues earned from Energy Arbitrage more than doubled from 7% in 2022 to 15%.
Why was Energy Arbitrage a less significant portion of the revenue stack?
Peak demand in real-time was far below the day-ahead forecast on the 15th and 16th. Forecast errors were 11% and 14% for the peak demand hour of each day, respectively.
This over-forecast meant that clearing prices for Ancillary Services were - on average - four times higher than real-time settlement prices for Energy during the morning peaks.
ERCOT’s load forecasts tend to be very conservative, particularly in extreme cold weather scenarios.
Most batteries tend to avoid day-ahead Energy contracts to preserve flexibility. As a result, their primary exposure to high day-ahead prices was through Ancillary Service contracts.
However, there was a significant spike in real-time prices during the evening of the 16th. This was largely due to a significant net load ramp, with demand beginning to ramp up while the sun set. This meant preserving some flexibility for Energy Arbitrage in real-time paid off for some batteries.
Benchmarking Pro ERCOT subscribers can take a look at how individual battery energy storage systems navigated Winter Storm Heather below.
How did significant day-ahead to real-time spreads impact the battery energy storage revenue leaderboard?
Day-ahead prices were around four times higher than real-time prices during each morning peak. As a result, batteries that targeted the Day-Ahead Market for securing revenues performed at a high level.
In particular, battery energy storage systems that prioritized a well-rounded strategy of procuring responsibility for multiple Ancillary Services during each morning peak captured the most revenue.
Conversely, assets that captured less revenue during the winter storm often only carried Ancillary Service responsiblity on one of the two high revenue days, or only pursued one ancillary service revenue stream.
What led to success for the battery that earned the most revenue?
Clearing prices for each morning peak were four times higher in the Day-Ahead Market than settlement prices in the Real-Time Market. This meant that batteries that allocated a significant proportion of their capacity during the morning to awards in the Day-Ahead Market were able to capture extremely high revenues.
Madero U1 captured the most revenue of any battery energy storage system across January 15th and 16th. Over the course of the two days, the resource earned nearly $12,000/MW. This was almost twice as much as the average battery during Winter Storm Heather.
One of the keys to this was pursuing Ancillary Service awards for both morning peaks. Madero U1 allocated an average of 79% of its 100 MW of rated power capability to Ancillary Service contracts during the morning peak of January 15th.
This consisted of a diversified strategy of both Regulation and Reserve services. It switched between Regulation Up and Regulation Down - likely for state-of-charge management - while carrying a mixture of RRS and ECRS.
During the same hours on the 16th, 100% of its capacity was allocated to Ancillary Services.
What does this mean for the future?
ERCOT’s load forecasts tend to be very conservative, particularly in extreme cold weather scenarios. This can lead to significant spreads between the Day-Ahead Market and the Real-Time Market.
These spreads represent a significant opportunity for battery energy storage resources to secure revenues in the Day-Ahead Market. This will still hold true even after the saturation of Ancillary Services.
Batteries can pursue day-ahead contracts for Energy, while system scarcity in the Day-Ahead Market will still put upward pressure on the clearing prices for Ancillary Services, even after saturation.
With that being said, extreme weather still has the potential to lead to system scarcity in real-time. Real-time scarcity is what drives significant price spikes, such as the one observed on the evening of January 16th.
Maximizing revenue during extreme weather events consists of balancing operational flexibility. This means pursuing opportunities in the Day-Ahead Market, particularly in scenarios where demand is likely to be over-forecast, while also preserving flexibility to capture revenues during scarcity events in real-time.
Batteries will continue to be the main provider of Ancillary Services as the buildout continues. At the same time, they will also have the flexibility to respond to changing conditions in real-time. As a result, battery energy storage systems will continue to serve as a critical component of meeting the system’s needs during these extreme weather events.