56 - An intro to ERCOT with Alex Done (Lead data scientist @ Modo Energy)

I'm going to--

I'm going to curveball that, which is that ERCOT is probably more similar to GB than you'd expect.

Lots of countries around the world have got a capacity market, but Texas doesn't do it that way, right?

There's two different ways you can split the ERCOT market. One is ancillary versus energy and the other way--

other one is day ahead versus real time.

In ERCOT, at different points in the network at the same time, there are different prices.

Do you trade day ahead, then trade out your position in real time? Do you trade everything real time, but take a basis swap so you're actually getting day-ahead prices?

The best way to stimulate that is the different prices at different nodes.

[WHOOSH]

Hey, everybody. Quentin here. And we're going to do something a little bit different this week. In the next few weeks, we've got some special episodes lined up with folks who know a lot about the ERCOT market. So that's Texas, USA. And before we got started on that mini series, we figured it'd probably make sense to do an introduction to that market.

So I sat down with Alex Done, employee number 1 at Modo, and he's been down the rabbit hole on all things batteries in ERCOT for the last 12 months. So if anyone knows about this market, it's Alex.

And what's really cool about this is he sees things through the lens of Great Britain, which is his first market to get his head around. So in this conversation, we talk about who's in the market, how it works, and how we should think about ERCOT when coming from a background of Great Britain. So I hope you like it, and please do let us know what you think in the comments, and do hit Subscribe.

[MUSIC PLAYING]

(SINGING) Ba, ba, ba, da, ba, ba, ba.

(SINGING) Ba, ba, ba, ba, ba, ba, ba, ba, ba, ba, ba, ba, ba!

[LAUGHTER]

All right. So hello, everybody. This is a special episode. We've of course got Alex Done on who is--

well, he's been with Modo since day 1, employee number 1. And Alex has been down the rabbit hole on the ERCOT market, which is the market in Texas, for the last year or so. And so we're doing this episode because we've got a few more guests lined up in a few episodes' time which are aimed at the US market. But we know that a lot of our listeners are UK or Europe-focused.

So this is a special episode where we're going to do an explainer on, what is the state of batteries or energy storage in ERCOT in Texas? And what do you need to know so that in the future episodes you've got some reference points?

And there's no one better to do this, because Alex, you've been deep, deep, deep in this stuff. And the good thing about this conversation is you'll be able to explain it through the lens of UK and GB.

Yeah, I imagine it's going to be a lot of, oh, in GB, this is called--

yeah.

We'll do plenty of that. I'm going to push you for that.

Let's go over the basics. So this thing--

when we talk about Texas and we talk about ERCOT, what is ERCOT?

So ERCOT is essentially the system operator in Texas. So it stands for the Electricity Reliability Council Of Texas. And they do all the things that the ESO does in the UK. So they centrally dispatch all the plants, which is admittedly slightly different, and they manage all the seasonal adequacy. So have we got enough capacity for this winter? That sort of stuff. They're the system operator, essentially.

So a bit like National Grid ESO.

Exactly.

And they procure the frequency response services.

Yeah, all the frequency response, they dispatch all the plants, the balancing mechanism equivalent in ERCOT in Texas, all managed by ERCOT.

OK. So ERCOT in Texas, does that cover all of Texas?

No. So there are some areas of Texas that aren't included in ERCOT. So everything that's in ERCOT is Texas, but not everything in Texas is ERCOT, if that makes sense.

Nice. There's a Venn--

ALEX DONE: There's like a Venn dia--

yeah, exactly.

OK. All right. Let's talk about how interesting ERCOT is, because it's very different to Great Britain. So why is ERCOT so interesting?

So I'm actually going to go with a slightly--

I'm going to--

I'm going to curveball that, which is that ERCOT is probably more similar to GB than you'd expect in that it's somewhat islanded. So the rest of the US, you've got different ISOs or Independent System Operators that cover large regions. So you've got CISO on the West Coast and you've got PJM up in the Northeast.

ERCOT is its own independent system operator. So it's not really that interconnected with the surrounding states, in the same way that GB is islanded and it's not like the pan-European shelf.

So ERCOT is somewhat islanded. And the reason basically that happened is because they didn't want to fall under the jurisdiction of federal control, so they essentially stepped on the wires and said, we'll go alone. So really the Lone Star State.

QUENTIN: Don't mess with Texas.

Don't mess with Texas.

And I--

so on the ERCOT website, there's a video. I think it's on the ERCOT website. It's on YouTube or something, that ERCOT originally started as--

there were some ice manufacturers. There was two or three--

like, literally companies that produce ice, and they needed a ton of power. And they had their own little power grid, and they connected to each other to get some redundancy, and that's how ERCOT started, which was just ice factories connecting. And then they realized they've got an asset, and then other people could connect to it before you had--

you had this sprawling grid.

So this dream of demand just appears where it needs to and you've got this beautifully organic forming power grid. It's really cool. Yeah.

And then--

yeah. So that's an important thing. It's not really that electrically connected with the rest of the US. The rest of the US is one big--

going to say one big blob. That's not technically true, but there's lots of different things going on. But ERCOT is--

Texas is one step away from that, isn't it?

Yeah. So in the same way that you've got Europe, which obviously, there's a lot of interconnection between the UK and Europe. You know, France and Germany, heavily interconnected, and the same down South in Spain as well. It's basically the same idea on the West Coast and the East Coast of America, and then you've got ERCOT, which sort of stands, as I say, alone in that sort of way of thinking, I guess.

So you've got a special island within the states.

ALEX DONE: Yes.

And they do things a bit differently. And then because of where they are where it's very hot, the demands on that grid are very different to what we're used to in Northern Europe.

ALEX DONE: Yes.

Would you describe--

I guess we're Northern Europe.

ALEX DONE: Yeah, I guess--

yeah.

So over here when it's really cold in the winter--

ALEX DONE: Everyone flicks on the kettle. Everyone turns on the heating.

Exactly. Yeah. So peak demand, the triad periods are, what? 40-ish gigs. And they're between--

well, apart from this year where it was on a Friday, usually they're between 4:00 and 7:00 PM on a Wednesday or Thursday.

Exactly. Yeah.

But in Texas, in ERCOT, it's very different. So when's their peak?

Yeah. So I mean, there's heating days and there's cooling days. The idea is that in the middle of the winter, obviously people are flicking on their heating. But in the middle of the summer, people are flicking on their air conditioning. So you get a lot more demand in the summer, and that can be some of the most intense periods of demand.

Obviously in the UK we just complain about it and take our shirts off and have a kind of [? stellar, ?]

but [LAUGHS]

the ERCOT system, they have these air conditioning units, which essentially really boost demand. And you get these really interesting interplays between demand being really high in the summer, but also solar generation being really high in the middle of summer as well. So yeah, definitely interesting dynamics going on there.

So in the middle of the day when it's really hot, that is when there's the most air conditioning load on the system, and that's where you get often the highest demand on the system, which is also when there's other electrical things happening like the overhead lines are expanding under the heat, right? You have the cooling in the transformers. There's all this stuff happening that they've got to manage. And then in the winter, you also sometimes have freak events like--

QUENTIN: --cool names.

Storm Uri.

QUENTIN: Storm Uri.

We can't not talk about Storm Uri.

Well, let's do Storm Uri. When was Storm Uri?

So that was in February 2021. And I guess, first off the bat, it was a pretty tragic incident, essentially. We had gas generat--

well, gas pipelines freezing. We had gas generation failing. We had wind generation failing. The system lost an inordinate amount of load, the amount of load that you think surely modern power systems can't lose this amount of generation in one go.

Like, it's nuts.

Do we have a number? I put you on the spot.

I think it was--

QUENTIN: We don't have a number.

No, we don't. I think it was--

I think it was 15% of demand they lost in a day, which is bananas.

QUENTIN: And this is in Texas, which is historically very hot. And then you had--

this is a snowstorm, wasn't it?

Like an ice storm. Yeah. Arctic blast, I think is the phrase that people use. Yeah.

And these things, like--

Black Swan event is, I think, a phrase that's been thrown around a lot. But then--

Well, the fact that it's been thrown around so much--

ALEX DONE: Yeah, yeah. It's one of--

Not actually [INAUDIBLE].

ALEX DONE: Exactly, yeah.

[LAUGHS]

Yeah, I mean, we saw one--

we saw one last Christmas, actually, on the 25th of December '22, which was another Arctic blast that saw prices go through the roof.

But yeah, back to Storm Uri.

We saw unprecedented sort of chaos in the power grid. And yeah, a lot of people were without power. A lot of people lost their lives, unfortunately. And yeah, the power system was I think ultimately--

it outlined some flaws in the way things are run there, I think.

You and I have spent a lot of time in the US and in Texas in the last six months or so, and you go to a bar, and it's one of those things that everybody knows how to talk about, right? Whereas in the UK, generally people--

If someone tries to talk to you about a blackout in the UK, they're probably in energy.

QUENTIN: Exactly. Yeah. Whereas over there, you know, everyone's got stories. They were five days without power and the fridge had stopped working, or whatever.

ALEX DONE: Yeah, yeah. So it's right in the front and center of people's minds. Let's talk about generation during that storm, or the storms. So we have a few mechanisms in the UK that will encourage generation to be on the line.

A capacity market, for example. Lots of countries around the world have got a capacity market, but Texas doesn't do it that way, right?

Yeah. So this is one of these sort of--

I guess it's a fundamental idea about how you build a power system. Do you compensate people for building the capacity directly, or do you just sort of let the market do its thing, let the invisible hand pick the assets that need to come online? And Texas is very much opting for that latter option.

So we did some analysis I think that was in the deck. We published for the Story Summit that--

we were in Austin last week--

50% of your revenues, if you're a battery asset, come from 50 days. So that's your sort of capacity payment, so to speak. It's those chaotic events that happen infrequently that really incentivize you to build your storage asset, but also any other generation asset.

Well, yeah, this is a good philosophical point actually about how--

about culture in the South of the US, which is free market place. And Texas especially, they've taken the approach of rather than mandating, rather than the government or the local government or ERCOT or whatever mandating that we're going to build a certain amount of batteries or smart grid stuff like other states have done, on the other hand, Texas said, we're going to let the market decide, and we're going to open up the market by allowing really high prices at certain times.

But yeah, philosophically, rather than setting up things like capacity markets and subsidies, Texas opted for the let the market decide and encour--

stimulate investment by--

The classic free market.

QUENTIN: Classic free market economics.

And there's a real question here, right? On paper, it feels like almost a bit of a banal question, right? You can choose whichever you want, just depending on your philosophies. But then when you look at it in the context of Storm Uri and you're like, oh, this fundamentally, as you say, affected so many people's lives, and everybody has a story to tell about it, and everybody remembers when it happened, there's the human impact, the human consequence of it as well, which is--

it's an interesting one to sort of factor into those economics textbooks.

So let's talk about batteries then.

ALEX DONE: Yes.

So simple question. How many batteries or how many gigawatts of batteries [INAUDIBLE]?

We're 2.1 gig in Texas.

So that's about the same as we have in Great Britain, right?

And it's worth pointing out, that's like 20% of installed batteries in the US, which is nuts. So one state of 50 and 20% of the battery storage capacity comes from Texas. The only other real contender for sort of bigger state is California, which is about double in size, but obviously they have--

their batteries almost have an entirely different use case with the level of renewables that are in California.

Yeah. A lot more co-location, whereas Texas--

if you wanted to bet on a state that would be doing standalone batteries--

as well as there will be co-location. Don't get me wrong. There's a lot of standalone assets being developed there, whereas particularly in California it's a lot of co-located.

ALEX DONE: Yeah, exactly.

So we've got two gigs there. And are these--

what's the duration of these assets?

So we've seen sort of all across the spectrum. We've got short duration--

I want to say short duration, sort of half an hour, 45 minutes. Then we've got a couple of two-hour systems as well.

Again, the main sort of way people have been delivering--

or the main monetization method we've got for storage at the moment in the US is ancillary services. So that's shorter duration play, not doing massive amounts of load shifting like we see in California is sort of, I guess, one of the driving factors there.

And before we talk about the revenue streams, who are the big players? Who's the Gresham House, the Gore Streets, the Harmonys. Who are those?

So we've got--

I guess the three biggest we've got, we've got Broadreach--

well, Jupiter Power's the biggest, then Broadreach power, and then Key Capture Energy. They're the three that take up pretty much half of the installed capacity in Texas right now. So we always see that same consolidation we've got in the UK. We spoke about this a few years ago, the very small 10 megawatts here, 10 megawatts there developers aren't as common as they maybe used to be, and we're getting these big behemoth developers coming in and taking up huge chunks of the sector.

What are those companies like? Because we've got public listed funds over here who contract with optimizers, and there's a very--

there's certain way that it's done here.

You can draw a big flowchart of how everyone interacts. Like, where does the optimizer sit? Where does the developer sit?

But we also have some utilities. We also have folks like Zenobe who are pretty much doing it all themselves. We've got the whole range. And what's it like in ERCOT? What's the approach?

Yeah, so I think Jupiter's a pretty interesting example [INAUDIBLE]

Jupiter Power. They pretty much do everything. They do--

they've got a development footprint across the United States. It's not just in Texas.

They are building the assets. They're doing the asset management, the optimization. So it's pretty much everything is done in-house, which is really interesting. You've got this vertical integration as well as that huge consolidation of power within sort of key players.

Whereas if you contrast that to the UK, you've got people who just own the assets, contract out the development, and they're buying sites off developers. They're contracting them out to optimizers. They're essentially very hands-off in terms of everything asset-wise. They're just more focused on the financial side of things.

I would challenge--

[LAUGHS]

ALEX DONE: No, I know. I mean, I know that was--

I sort of--

I think the [INAUDIBLE]

in the UK are some of the most hands-on asset owners in the whole game.

I take that back. I guess you know that they're not trading the asset themselves.

No. No, no, no. There is a distinction there.

Whereas in the US, yeah, the idea of an optimizer or a trading party that you contract out your site to--

I'm not saying it doesn't exist.

Well, you've got Habitat over there, right?

We've got Habitat out there, I think Gridmatic. But yeah, for the most part, these big players are doing a lot of that work in-house.

And how do batteries make money in ERCOT?

I'm going to say something that you may have heard me say in the UK before, which is 99% of revenues for battery energy storage comes from ancillary services. Obviously, not the same ancillary services, but we've got regulation up, down, responsive reserve service. We've got a new ECRS, ERCOT Contingency Reserve Service.

Yeah. Let's do the jargon in a minute, right? So batteries make money at the moment in ERCOT a bit like they have done in the UK, which is in things like frequency response or reserves--

Yeah. Things are the--

things that support the grid that wouldn't be classified as just turning up your battery to meet demand.

So it's not the--

it's not the buy cheap, sell high.

Yeah, it's not the classic arbitrage.

The Wolf of Wall Street play. It's the contract with ERCOT, contract with the grid operator, and be available to do this thing and keep the lights on with frequency response and other things.

Yeah, exactly.

So the market over there is limited. So between--

there's seven, eight, nine, 10 gigs, something like that, of ancillary services available, depending on how you measure it.

Yeah.

And there's a couple of gigs of battery. And right now, there's more services than there are batteries, and batteries are making good money. But in the future, that will change like it has in the UK. Do you want to just talk about that?

Yeah. I guess the point that I'd probably touch on there is that in the same way that when we look at FFR from a few years ago, it wasn't just battery providing. There was pump storage in there. There was sort of peaking. There was DSR.

There's a load of technologies competing. And batteries came in and sort of all that up.

We're seeing the same thing in ERCOT right now. So we've got two gig of storage relative to the nine gig of ancillary services. But it's not just batteries that are playing in those markets. We've got demand response of assets playing in those asset--

in those markets. They're pricing pretty low, so they're the ones to beat, so to speak.

We've got thermal that's sort of at the margin mainly with governor valves on their turbines. Like, being able to respond to frequency deviations.

So yeah, there's a whole sort of stack of technologies in those ancillary services. And while it is fair to say that we're going to hit saturation and batteries are going to start becoming those marginal units and competing with each other, there's still technologies to take a chunk out of the revenue pie before it becomes that for batteries.

What are these services like? Are they like Dynamic Containment and FFR, or are they different?

Yeah, so I mean, they all broadly fall into this concept of just supporting the grid. So between the five-minute intervals where ERCOT tells different generators to turn up or turn down, there can be deviations in terms of supply matching demand. And as a result, frequency moves up or down.

All of these services in some way or another help to balance that out. So yeah, I mean, without wanting to get into the nitty gritty of everything and primary frequency response and fast and under frequency relays, they all do something that you're probably familiar with if you've looked at any energy market across the world.

And the market's day ahead, though, right?

Well, this is the other thing. Yeah. So in the UK, we have--

or we used to have merchant markets. So the BM and the wholesale markets, and then we had ancillary markets, which were all sort of contracted ahead of time, for months at a time, potentially. And you sort of had that merchant risk and that ancillary risk that you hear talk about. In the US, everything's day ahead, so all of those services, that reg up, the reg down, the ROS, all the stuff we spoke about, all day ahead.

In ERCOT.

ALEX DONE: In ERCOT, yeah. So there's no sort of like--

there's no ancillary services are less risky because you can contract them a month ahead. It's just--

it's happening tomorrow and your auction's today. [LAUGHS]

Like--

QUENTIN: Yeah, yeah. What happens here where you might bid into FFR a month ahead at a lower price because you're quite happy to lock in a month's worth of revenues.

I've got contracted revenue. I can take that to the bank. And we look back five years, and you could get an EFR contract for four years and a CM contract for 15, an FFR contract for two years.

And you've got to manage four years of merchant risk. In ERCOT, that doesn't happen. [LAUGHS]

You've got no capacity market. It's all day ahead.

Everything's day ahead. So you build an asset.

There is no guaranteed revenues. It's like build it and go to the races.

Yeah, yeah. It's merchant risk. It's all merchant risk. [LAUGHS]

We don't really talk about merchant [INAUDIBLE]..

Yeah. That was one of the first mistakes that I think I made chatting to someone in Texas about the battery market. I was like, oh, yeah, so what's it like with the whole merchant ancillary thing? And they're like, what do you mean?

It's like--

it's all day ahead, man.

QUENTIN: All day ahead. I really like it. I mean, that should mean with the way that Europe's going, the way that everyone's going is towards real-time markets, right? They should mean that you get on the whole more liquidity and better price for the consumer.

But it's more difficult for the grid operator to manage if you don't know what you're getting a month ahead.

Yeah. I mean, I think it's the same reason that the ESO basically launched all these day-ahead services in the UK, right? Part of the EBGL guidelines. But essentially, what happened was they said, we're going to do this day ahead because it's cheaper for us. Like, we don't want to procure month ahead because maybe on one Friday we'll need loads and one Thursday we won't. Let's just do it all real time.

All right. What about energy trading, or what--

we think about the balancing mechanism and the day-ahead market and the intraday market and all this stuff. How does that translate to ERCOT?

Yeah. So I guess there's two ways you can--

there's two different ways you can split the ERCOT market. One is ancillary versus energy and the other way--

other one is day ahead versus real time. So we've already touched on the ancillary stuff, so let's do day ahead versus real time.

The day-ahead market, you submit your head--

your bids day ahead of delivery. You get accepted. You get dispatched by the system operator. Then you've got the real-time markets as well, which is--

I guess translates more closely to the BM or an intraday market where you get dispatched at, like, five-minute intervals within day, and you're getting a completely different price to the one that happened day ahead.

And then at this point, you've got loads of really cool, interesting dynamics that can play out. So do you trade day ahead and then trade out your position in the real time? Do you trade everything real time, but take a basis swap so you're actually getting day-ahead prices? Do you do the opposite of that thing? So there's a host of really funky financial instruments called DART swaps and things which essentially allow you to trade Day Ahead, DA with the Real Time, RT, DART.

QUENTIN: Oh, OK.

And gives you that little--

sort of allows you to change your risk profile. And that's before we even start talking about congestion revenue rights and the fact that we've got a nodal market, because that's a whole kettle of fish that we haven't even looked into.

We're going to come to that in a second. Can you just talk for a second about what it means to have a centrally dispatched system as opposed to what we're used to in Europe, which is a bit different?

I think the easiest way to think about it is like the day-ahead market versus the BM. So in the day-ahead market, you buy or sell power and then you say, National Grid, I'm going to dispatch this much. And then that's what's going to happen.

So as a battery, you do all your trading stuff before the gate closure, and you're telling the system operator, here's what I'm going to do.

Yeah, I'm going to do--

I'm going to export 10 megawatts for the next hour. OK, cool. So I've sort of individually chosen to dispatch there.

So you've dispatched yourself.

ALEX DONE: Exactly, yeah. In the BM, though, we have what is more similar to this central dispatch idea, which is that I say to National Grid, if you want me, I can turn down to 10 [? mg. ?]

And then National Grid looks at everybody who's giving them those signals. I can turn up, I can turn down. And they take whoever they want and then they tell them to do it.

ALEX DONE: And then you follow on National Grid.

So the National Grid--

ALEX DONE: That's the centrally dispatched--

The National Grid control room is dispatching people, but only in the BM, not in the normal, big, liquid, deep markets.

Yeah. In ERCOT, essentially everything is like the BM in the sense that you say what you can do, and then ERCOT chooses what it wants you to do.

OK. So the ERCOT control room is calling you up or pressing buttons to say--

ALEX DONE: [? Sending you the ?]

facts. Like, yes. [LAUGHS]

[? Sending you the ?]

facts just like in the BM, but across much bigger volumes.

Exactly. Yeah.

OK. And that's interesting, because that changes the way that you--

it changes the whole thinking around building and operating assets.

Yeah, it's almost like--

I mean, I think REMA's a really interesting thing to touch on here. So the Review of the Electricity Market Arrangements in the UK, when you go back to basics and you say, if you were going to build a new energy system, what fundamental building blocks would you take?

ERCOT was at that similar stage at one time and it picked the central dispatch sort of bucket of things to happen. And yeah, I guess it sort of speaks to how varied these markets can be from choosing very, very subtly different fundamentals.

OK.

Now, one of the things that ERCOT and the US is very famous for is locational pricing or nodal pricing. Right. So in a nutshell, and then I'm going to you some difficult questions, what is--

let's start with, what is locational pricing, and what problem does it solve?

Yeah. Great question.

QUENTIN: Thank you.

[LAUGHS]

In--

in a certain region if you have a single price, everybody in that region gets paid or pays that price for electricity. In a nodal or zonal or whatever market, you have different areas that have different prices. So if you're in one region, in a different region, you pay a different price for your energy.

And this is different. What we're used to in Great Britain is there is one price across the network.

ALEX DONE: One price to rule them all.

Give or take a little bit of stuff, but generally, if it's 50 pounds a megawatt hour in Scotland and 50 pounds a megawatt hour in London, that's totally normal. It's just the same.

ALEX DONE: Yeah, exactly.

But in--

let's just talk about ERCOT for a second. In ERCOT, at different points in the network at the same time, there are different prices.

Yeah. A lot of them as well. You have settlement point prices at every single electrical bus on the system, essentially. You have one at every hub. You have one at every load zone. There's loads of them.

So someone's got to go and calculate all these different--

well, actually, we'll come to the problem it solves in a minute. But just computationally, someone's got to calculate all these different prices. So why is it worth all this effort?

I mean--

OK. Yeah.

Essentially, it gives you a locational signal. You used Scotland, an example in GB, right? It's 50 quid in Scotland. It's 50 pounds in London. Should that be the case? Is there the same amount of demand in those two locations?

Um, spoiler. No, it shouldn't.

ALEX DONE: Yeah, yeah. Exactly.

It's ridiculous, right?

And I guess the--

it bakes in an observable market cost to having generation and demand at a given location, and also respects the transmission connection between those two things. So what is it--

like, an interesting sort of modeling thing is that if you make all the transmission capacity infinite in a nodal market, all the prices are the same. Congestion management is the precise reason that prices move apart from each other in a nodal market.

Well, let's talk about that for a second. This thing called congestion, which we call in the UK and GB constraints, they call congestion, but it's basically the same thing, right? Which is where you have some overhead lines or some cables or a bit of the transmission or distribution network that because you've got so much power in one bit and so much demand in another, there's a limit to how much power can be transferred across that network.

ALEX DONE: The pipe's not big enough to shove all the stuff through.

Exactly. And so what they very cleverly did is said, well, we want to stimulate new generation or demand side response or other things in different parts of the network rather than just building more lines everywhere. The best way to stimulate that is through different prices at different nodes.

Exactly. So if you've got a really intensive steel factory and there's a node over here that's got loads of demand, loads of generation, and prices continually go to zero, as a steel manufacturer that's brilliant, right? I just drop my factory down there, and--

Just drop your factory.

Yeah, just like--

droop. [INAUDIBLE]

I mean--

I mean--

[INAUDIBLE]

Yeah. I mean, maybe a better example that you could actually drop down there is like high-performance computing.

Yes.

You just drop a [? little ?]

data somewhere and it's like, OK, great. I've got really cheap power.

So who works out all these prices for the market?

ERCOT essentially have a really detailed model of exactly what's generating and how the grid looks and what the transmission constraints are across the entire network. And because of that, it understands who's turning up, who's turning down, and essentially looks at the marginal cost of electricity.

So if I wanted a tiny little bit more generation in a certain node, how much would it cost to get that? Now in the UK, a tiny little bit of generation in the UK just means move one step up on the stack, or maybe get a little bit more across the interconnectors.

In ERCOT, what it can mean is, oh, we can't import from this node because we're already congested, so we need to import through these three nodes. And then because of that one we get congestion here, so this congestion influences this over here. And then you've got what started as a really basic question of, if we increase generation by one megawatt hour, what would it cost to? This whole network's being affected by this tiny little one-megawatt hour.

And that's for one node in one settlement period.

QUENTIN: Yeah.

Which is bonkers. And then you repeat that--

I wouldn't say--

ALEX DONE: Factorial equations involved.

There are some big numbers involved, yeah.

And if you've looked at the data as well, there's some big data sets involved, which makes me very excited. [LAUGHS]

All right. Last question.

ALEX DONE: Yeah?

What does the future look like? And I don't expect to get out your crystal ball, but on the asset side, what's being built?

We've got a couple of gigs now. What does the future look like? And then market-wise, there's a couple of changes happening right now, so could you talk about those?

But the asset side, two gigawatts of batteries at the moment. Loads of wind and solar being built out. What does the build-out of batteries look like?

So we're looking at sort of 10 gig by the end of '25. That's what's currently in interconnection queues and has like got some sort of financial backing behind it. That's a lot.

So that's [INAUDIBLE].

Well, that comes from the Seasonal Adequacy Resource Assessment, which is something that ERCOT publishes pretty regularly. Basically says, how much capacity do we expect to have on the system? How well prepared are we for the future?

QUENTIN: OK.

So yeah, 10 gig by 20--

by the end of 2025. For context, that's the whole of North America right now is going to--

in five years--

or in two years time exist exclusively in Texas.

QUENTIN: Yeah, Yeah, yeah.

That's mad. That's mad. And then on the market side, I guess one of the interesting ones for--

there's two interesting things, right? We've already touched on saturation. And I think this move from ancillary services into these day-ahead markets is going to be a big sort of factor in how batteries are monetized in the coming months.

When you said day ahead, you mean energy, because--

ALEX DONE: Day ahead energy.

Also day ahead.

ALEX DONE: This is--

again, this is a hangover from the UK, but yeah. So the movement from ancillary services to energy trading is going to happen. And we think based on an indicative understanding of how big the frequency response markets are or the ancillary service markets are and how quickly we think batteries are going to get deployed, probably going to happen around summer of '24.

OK. Somewhere next year.

Yeah. And that's going to be the big change in the market is basically people, we think, moving a lot more into those day-ahead energy markets and the real-time energy markets, just like we've seen in the UK. So yeah, I think it's going to be an interesting time. We've also got things like ECRS coming in. That's going to be a new service that comes in in the not-too-distant future that, again, is pretty well suited to batteries.

But it's not new megawatts, right? Because it's going to eat away--

It eats away at old megawatts.

QUENTIN: Yeah. Yeah.

But there's lots of interesting things that make ERCOT quite an exciting place to be at the moment, I guess.

And then on top of that--

so there's a few owners of assets over there, but this 10 gigs or so that's being deployed next couple of years, we've got a lot of new players entering the market. So we've got some European players.

We've got some Chinese players. We've got players from all around the world buying up assets that are [? spade ?]

ready or ready to build. And they're going to turn them into real operational batteries. That's quite exciting.

It's very exciting. I mean, every time you talk about the US or [? someone ?]

in the context of battery energy storage, the places they're looking at are ERCOT and California in CISO. So it's pretty exciting that when we went to, for example, ESS a few weeks back, we spoke to loads of people from the UK who were like, yeah, we're really interested in the US too. We're really interested in Texas. So we're seeing the likes of Zenobe, Gore Street, you know, loads of big names coming over to Texas to really supercharge the deployment of energy storage.

Yeah.

So we've got a reminder. We did this because we've got some really, really great guests coming on from--

who know a lot about ERCOT. And hopefully, this has given everyone a bit of a primer so we can get stuck into it with them. But do let us know what you think of this in the comments. If you've got any questions, fire them our way.

And if you didn't see it, we released some content, which is a load of slides a couple of weeks ago. It was on LinkedIn. If you didn't get a copy of those slides, which is an introduction to ERCOT, please do send us an email and we will send them to you straight away. And that's it from us. See you next week.