Conventional wisdom suggests that Ancillary Service prices decrease as more battery energy storage systems come online.
However, this hasn’t necessarily been the case in ERCOT - at least, not at first glance. In fact, Ancillary Service prices are primarily driven by overall system scarcity - essentially, they rise and fall in line with the price of energy.
The spikes in the chart above show this. Outside of Winter Storm Uri (an extreme anomaly, which we’ve omitted from this analysis), the hot summer months of 2021-2023 resulted in the highest prices over the past few years.
Other factors that impact Ancillary Services prices include:
- Any increase in the total volume of Ancillary Services procured - e.g. the increase in Non-Spin procurement in fall 2021, from around 1.5 GW to nearly 5 GW.
- The introduction of a new Ancillary Service - e.g. the Contingency Reserve Service (ECRS) in June 2023.
Despite this, there are still signs that the proliferation of battery energy storage systems is having an impact on Ancillary Service prices in ERCOT.
Ancillary Service prices are decreasing - relative to Day-Ahead Energy
Simply looking at Ancillary Service prices on their own doesn’t tell the full story. It makes more sense to consider how they’ve changed relative to Energy prices.
Let’s compare the six-month rolling average of:
- all Ancillary Service prices,
- and Bus Average Hub Day-Ahead Energy prices.
Generally, the gap between Day-Ahead Energy prices and Ancillary Service prices has been growing over the last few years.
However, there were exceptions through the middle of 2021 and 2023 - due to:
- more conservative operations following Winter Storm Uri - including increased Ancillary Service procurement,
- and the introduction of a new Ancillary Service in June 2023 - ERCOT’s Contingency Reserve Service (ECRS).
By comparing Ancillary Services prices to Day-Ahead Energy prices (i.e. dividing one by the other), we can better measure their actual value - even accounting for the market's overall volatility.
When we do this, some trends begin to emerge. In the markets most dominated by battery energy storage systems, prices are decreasing (relative to Energy prices).
- Prices in the Responsive Reserve Service (RRS) have decreased by 50% in the last two years, relative to Day-Ahead Energy prices.
- And prices in Regulation Up have decreased 46% in the last two years, relative to Energy.
Batteries have much lower short-run marginal costs than thermal resources. This means that they can generally bid into markets and services at lower prices. So, as more batteries enter the grid, prices will likely decrease in services suited to battery participation.
Battery energy storage systems are providing a larger proportion of Ancillary Services than ever before
Since the beginning of 2022, the total rated power of commercially operational battery energy storage in ERCOT has grown from around 1 GW to just over 6 GW.
And, over the same period, the monthly average proportion of Ancillary Services provided by battery energy storage systems has almost doubled - from around 30% to just under 60%.
And this number includes all Ancillary Services - even those less suited to battery energy storage systems.
Take the Non-Spinning Reserve service (or Non-Spin):
- It has a less strict start-up time requirement than RRS and ECRS. This allows more thermal resources to offer into the service.
- And it has a four-hour duration requirement. This means that batteries can only qualify to provide a level of capacity that they could produce for four consecutive hours when fully charged. Given that most batteries in ERCOT have durations of under two hours, this makes the service prohibitive.
So, if we exclude Non-Spin, the proportion of Ancillary Service responsibility provided by batteries rises to nearly 70% - up from less than 50% two years ago.
On top of this, batteries are actually reserving a smaller proportion of their rated power for Ancillary Services.
Since the beginning of 2022, the proportion of rated power reserved for Ancillary Services has decreased - from more than 60%, to around 40%.
So, batteries are increasingly the dominant force in Ancillary Services - while also performing more Energy Arbitrage.
Modo subscribers can read the rest of the report below to learn:
- What proportion of Ancillary Service offers come from battery energy storage systems.
- How batteries are pricing into Ancillary Services.
- And how those offer prices stack up against competing technologies.
In some Ancillary Services, battery energy storage offers alone cover the procurement requirements
On average, in any given operating hour from April 19th and May 18th (i.e. the last 30 days for which ERCOT’s market disclosure data exists), batteries offered more than 100% of the procured volume in the following Ancillary Services:
- Regulation Up.
- Responsive Reserve (RRS).
- Regulation Down.