In September 2024, Ancillary Service clearing prices in ERCOT averaged just $1.93/MW/h. This is the lowest they’ve been, across a month, since battery energy storage systems entered the market.
This is the fourth time that average monthly Ancillary Service clearing prices have fallen below $4/MW/h since December 2023 - something that had never happened previously (in the 2020s).
In part, this is due to low natural gas prices during this period. So far in 2024, natural gas has had an average price of $2.11/MMBtu.
However, natural gas prices were at similar levels throughout much of 2020, averaging $2.04/MMBtu across 2020. Despite this, monthly average Ancillary Service prices never fell below $5.50/MW/h during that year.
Additionally, the ERCOT system also experienced minimal scarcity conditions in 2020, similar to 2024 thus far.
In fact, 2020 saw the lowest average Real-Time Energy prices of any year in the last five years, averaging just $25.73/MWh.
Since 2020, ERCOT has also increased the average amount of Ancillary Service volume it procures each hour by around 60%.
The primary difference between Ancillary Service prices in 2020 and 2024 is the introduction of battery energy storage systems to ERCOT.
Without batteries, Ancillary Service prices would likely be higher than they were in 2020, as a result of the market conditions outlined above.
How have battery energy storage operations evolved in response to lower Ancillary Service prices?
Since March, the proportion of Ancillary Service volume provided by battery energy storage has remained pretty constant.
Batteries have consistently provided around 56% of total Ancillary Service responsibility. Between March and July, there was no significant increase. This was despite nearly a gigawatt of battery energy storage coming online in that time.
There are more batteries able to provide these services, but the responsibility they are being awarded has basically plateaued.
But what about the proportion of battery capacity used to provide Ancillary Services?
Since July 2023, batteries have consistently allocated between 41% and 56% (on average) of their rated power to providing Ancillary Services. In most months, this has been close to 50%.
This is despite the installed rated power of batteries increasing by over 2 GW between July 2023 and July 2024.
This seems contradictory at first. Logic would state that if there are more batteries on the system, and the proportion of battery capacity in Ancillary Services is relatively consistent, they would likely carry a larger proportion of the total responsibility.
However, this hasn’t necessarily been the case.
This is generally due to small month-to-month differences. For example, total available Ancillary Service responsibility decreased slightly from Spring to Summer. Meanwhile, much of the thermal generation fleet returns from seasonal maintenance outages between May and June.
Additionally, the introduction of NPRR 1186 in June means that battery operators are more conservative with the amount of Ancillary Service responsibility they provide.
However, this has been partially offset by new batteries coming online. These new batteries have meant that the proportion of battery capacity in the Ancillary Service markets hasn’t declined starkly as a result of NPRR 1186.
So, both the proportion of Ancillary Services awarded to batteries and the proportion of their total rated power allocated to Ancillary Services have plateaued.
One of these trends will have to break soon. Buildout is continuing rapidly, while the effects of NPRR 1186 are already in place. Since the end of July, another ~1.1 GW of new batteries have become commercially operational.
As a result, if batteries continue to allocate ~50% of their rated power to Ancillary Services, the proportion of total responsibility provided by batteries will increase.
In either scenario, competition to provide Ancillary Services is increasing, whether more batteries actually receive awards or not.
How has this impacted battery revenues?
This suggests that clearing prices - relative to Energy prices - have reached a point at which many storage providers consider providing Ancillary Services less worthwhile.
And, with this, we’ve seen a shift toward Energy arbitrage for many operators. Energy made up 35% of battery energy storage revenues in July, the highest proportion since April.
You can see more details surrounding battery energy storage revenues in ERCOT with Modo’s ERCOT BESS Index.
This is higher than any month prior to December 2023. Interestingly, December 2023 was the first month that average Ancillary Service prices fell below $4/MW/h.
How much of each Ancillary Service are batteries providing - and how does that change throughout an operating day?
Battery energy storage systems have also followed a relatively consistent pattern of Ancillary Service responsibility each day.
Typically, overall battery participation in Ancillary Services is lowest in the early morning hours. This is when Ancillary Service clearing prices tend to be lowest, largely due to lower procured volumes and Energy prices.
The amount of responsibility carried by batteries rises throughout the day. This peaks between 5pm and 8pm each day, when clearing prices are usually at their highest.
In June and July, between 6pm and 7pm, batteries provided 76% of all possible Ancillary Service responsibility.
Most notable among these trends is the shape of battery energy storage ECRS responsibility throughout the day.
In June and July, the amount of ECRS provided by batteries rose from just 4% between 5am and 6am, to 70% between 6pm and 7pm.
This indicates that batteries prefer to avoid ECRS responsibility prior to the afternoon.
Batteries still provide 50% or more of Regulation and RRS responsibility during these ‘off-peak’ periods.
However, batteries likely want to prioritize the flexibility to charge and/or have some time in each day with relatively low amounts of energy stored in their cells.
Having flexibility to charge during the early morning hours is ideal for batteries. This is because this is typically the time of day when Energy prices are lowest.
But if batteries provided a significant amount of ECRS during the early parts of the day, they would need to have relatively high amounts of state of charge, under the guidelines of NPRR 1186. This would then mean they would have limited ability to charge during those low-priced periods.
Additionally, if a battery consistently has a high quantity of energy in its cells, it can be detrimental to its state of health and degrade the battery faster.
What does underlying Ancillary Service offer data reveal about battery energy storage participation in the market?
Batteries are offering similar proportions of volume into the market as seen during April and May.
In every Ancillary Service, the proportion of volume offered by batteries actually decreased by a couple of percentage points from April and May.
This is despite the growth in the installed capacity of batteries in ERCOT. Thermal generators returning from spring maintenance outages offset this new BESS capacity.
With that being said, there is now enough battery energy storage capacity in ERCOT to fulfill the needs of all Ancillary Services (bar Non-Spin).
Across every Ancillary Service, the average amount of volume offered in any given hour by batteries has increased.
In ECRS, for example, batteries now offer enough volume in a given hour, on average, to provide all procured responsibility. While some of this volume is offered at the $5,000/MW/h price cap, the volume offered by batteries continues to grow.
How are battery energy storage systems pricing their offers?
Battery offers continue to be priced more competitively than other technology types. However, relative to other resources, battery energy storage offer prices have continued to decline.
In June and July, the volume-weighted median offer price of batteries in Non-Spin was lower than that of other technology types. This was a departure from April and May.
And, between 5pm and 9pm (i.e. peak Ancillary Service hours), this difference was even starker. These hours are the best indicator of whether battery offer prices have continued to decline.
In ECRS, the volume-weighted median offer price of batteries was 62% lower than other technologies across all hours in June and July. Between 5pm and 9pm, it was 80% lower.
This plays out across all of the services - with the exception of the Responsive Reserve Service. In RRS, other generation types had considerably lower median and 25th percentile offer prices between 5pm and 9pm in June and July than in all other hours.
This is the exception to the rule, however, as across all of the other services, batteries consistently offer their volume at lower prices than other technologies, with that difference being largest during the peak price hours of the day.
For instance, in Regulation Up, the 75th percentile price for battery volume-weighted offers was just over $4/MW/h. This was 41% lower than the 75th percentile of offers from other technologies, which was just over $12/MW/h.
However, between 5pm and 9pm, this gap grew even wider. The 75th percentile of battery volume-weighted offer prices - of just under $8/MW/h - was 76% lower than other technology types’ price of $35/MW/h.
Ultimately, batteries generally offer the most competitive prices to provide all Ancillary Services. However, the gap between batteries and other technology types is actually widest during the highest-priced hours of the day.
So, are Ancillary Services now saturated?
It’s not quite as cut-and-dry as to say Ancillary Services either are or aren’t saturated.
Rather, what we’ve seen in ERCOT is that revenue opportunities for batteries in the Ancillary Service market have gradually declined.
As more batteries have come online, Ancillary prices - relative to Energy - have consistently declined.
This has corresponded with batteries continuing to provide larger and larger proportions of Ancillary Service responsibility. There have been some mitigating circumstances that have decreased competition or made Ancillary Services less attractive to batteries, such as:
- the increase in Ancillary Service Procurement after Winter Storm Uri,
- the introduction of ECRS,
- and the implementation of NPRR 1186.
Additionally, revenue opportunities do still exist during times of anticipated system scarcity - such as August 19th and 20th of this year.
However, the prevailing trend is that day-to-day Ancillary Service prices continue to decline with the introduction of more battery energy storage to the system - which doesn’t appear to be slowing down any time soon.