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Finding Energy Storage Opportunities in ERCOT

As the US continues its march towards decarbonizing the energy sector, batteries (or energy storage of any kind) continue to be a frequent point of discussion. While more wind and solar help to reduce emissions from plants running off fossil fuels, they also come with the unpredictability of when they will generate power. This unpredictability contributes to more volatile power pricing throughout the US. BTU Analytics previously discussed how an increase in wind generation has led to a measurable increase in price volatility in SPP, as well as how increasing wind has created more volatility in ERCOT. This increase in volatility will lead to opportunities for owners of storage, and today we will look at where some of the best opportunities exist within the ERCOT system.

To start, we can look at how pricing volatility at the major hubs has been increasing over the last several years in ERCOT. Volatility is good for energy storage because batteries allow for the quick capture of changes in pricing as they can begin charging when prices dip and sell back the power when prices rise by discharging. The more volatile the price, the more opportunity there is to go through the charge and discharge cycle.

Here we have volatility relative to how average prices have changed over the last several years. What we see is an increase in volatility (price fluctuations), with the Panhandle hub showing the largest swings in relative volatility. This does not paint the entire picture, however, since the Panhandle, while having a larger measure of relative volatility, also has lower pricing on average. This means it is possible for one of the other hubs to have better opportunity for batteries, as a hub with lower pricing and higher relative volatility may not be as advantageous to storage as a hub with higher pricing and lower volatility (dependent on the magnitude of swings throughout the day, or between five minutes intervals). To address some of this, we can look at the simulated net revenue associated with storage at each hub.

Here we see more clearly that the Panhandle hub likely presents better opportunities for storage, which is understandable given the amount of wind generation in the region. However, batteries are not likely to get exactly hub pricing, so individual LMPs become more important. The below map shows the average daily price volatility at each LMP in the BTU Analytics’ dataset for the year 2020. Locations with a green dot have higher volatility, indicating more potential opportunities for energy storage.

Looking at individual LMPs throughout ERCOT shows where some of the strongest opportunities lie. Throughout the western side of the state, as well as along the southern coast, many of the LMPs show strong volatility, an indicator of potential for energy storage. Even throughout areas where there is less volatility, like the North hub, there are still individual spots where batteries could see success.

While the analysis above gives an indication of where one can begin looking for some of the opportunities for energy storage, the best locations are still dependent on other factors, such as ancillary services, existing renewables capacity in the area, and upcoming thermal retirements which could drive volatility even further. To get more insight into power markets and how capacity is being brought on (and retired), check out the BTU Power View.

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Corey Boettiger is a Senior Quantitative Analyst at BTU Analytics. He works primarily on BTU Analytics’ power market analysis, with a focus on power price modeling and plant revenue modeling. He has previously been involved in several areas of BTU Analytics’ market research, including wellhead economic and NGL production, and has created and maintained several of BTU Analytics’ models. He holds a B.S. in Applied Mathematics and Statistics from the Colorado School of Mines.

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