With ERCOT once again facing tight reserve margins, traders are turning their eyes to where the generation could fall short on days with high load. Yes Energy tasked our chief economist, Dr. Scott Holladay, to dig into our data. He found some key areas where traders should be focusing their attention this summer.
Background:
In March, ERCOT released its preliminary Seasonal Assessment of Resource Adequacy (SARA) report for Summer 2019. The report stated that “In all of the scenarios studied, we identified a potential need to call an energy alert at various times this summer.” An alert allows ERCOT to call for actions to alleviate the lack of generation capacity including:
demand response products
tapping neighboring regions for generation
asking consumers to conserve energy
ERCOT also has two Real-time energy price adders it can use to incentivize generation when reserves are low. Real-time adders have been assessed in less than half the days over the past year. Of the days where Real-time adders were applied, only 35 had adders that exceeded an average of $1/MWh over the full day. That small bucket of days had an outsized impact on PnL. Over the last year, Hub North has exhibited an average day-ahead bias of $3.30/MWh. Filtering to days with adders above $1/MWh on average across the entire day, Hub North had a Real-time bias of $0.50/MWh. As the adders increase to $10/MWh, that average Real-time bias grows to $20 per MW/h.
Using ERCOT Security Constrained Economic Dispatch (SCED) data, we can identify the relationship between generation and ERCOT adders. SCED data is the real-time market evaluation of offers to produce a least-cost dispatch of online resources. Some plants ramp in anticipation of an energy alert. Ramps at those plants indicate big adders are on the way. Other plants may curtail output, leading to an energy alert and big adders. With detailed generation and price data, it is easy to pick out the signals that adders are coming to the market.
However, ERCOT SCED data is released on a 60 day lag, so the relationships in the data might be easy to find, but they are hard to trade on. Using Live Power’s 1 minute generation data, traders can get a signal that the plants at the top of the gen stack are ramping and adders are likely on the way.
Research & Findings:
Dr. Holladay leveraged Yes Energy’s DataSignals API and vast database to build a dataset to analyze in Python. He queried two years of SCED data for 21 key generators in ERCOT along with the ERCOT Price Adders. With this data, he computed the relationship between changes in the generation at the ERCOT power plants and the presence and strength of price adders.
The relationships were broken down into three categories: 15 minute, 30 minute and 60 minute. These categories indicate the relationship of the time from ramp to the price adders occurring. The 15 minute measures the relationship between changes in generation over the previous 15 minutes and the change in Real-time adders over the next 15 minutes. The 60 min score measures the relationship between a plant’s ramp over the past hour and Real-time adders. The higher the score, the stronger the correlation between changes in generation and changes in Real-time adders.
Plants with a high one hour score tend to ramp before the adders come in, providing a leading indicator to traders. Plants with a high 15 minute score tend to ramp shortly before adders enter the market. Plants with scores near zero don’t have a strong relationship with Real-time adders, so their changes in generation don’t provide much information. TH Wharton has a relatively high 60 minute score, but a low 15 minute score because it ramps to full capacity well before the adders come in.
According to Dr. Holladay’s research, here are four ERCOT Plants that give the best signal on future adders:
Table 1: ERCOT plants that give the best signal on future adders. The 15 min score reports the correlation between changes in plant generation in the last 15 minutes and changes in adders in the next 15 minutes. The 30 minute score is the correlation between changes in generation over the last 30 minutes and changes in adders in the next 15 minutes. DeCordova is a newer plant monitored by Live Power and has recently been added to this table as it is a strong indicator of adders happening soon. Plants like VH Braunig and Strkyer Creek with high 60 minute scores are ramping well before adders come in.
HISTORICAL EXAMPLES:
Using our Time Series Analysis module, we were able to capture some recent examples of these relationships. Here’s a look:
Chart 1: Two recent examples of the correlation between Stryker Creek and Price Adders highlighting Stryker Creek’s strong correlation across all time categories
Chart 2: A recent week in May that shows the strong correlation between V H Braunig and the Real-Time Adders.
Chart 3: T H Wharton’s correlation shows up the strongest after a longer time after ramp up as these recent examples show.