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The Electric Reliability Council of Texas (ERCOT) RTC+B project (Real-Time Co-Optimization with Batteries) significantly shifts how ERCOT manages its real-time and day-ahead markets. This project aims to co-optimize energy and ancillary services in the real-time market and introduce new block products for better power grid efficiency and reliability.
Let’s see what this means for ERCOT power traders.
How Will Real-Time Co-Optimization (RTC) Impact ERCOT Power Traders?
By co-optimizing energy and ancillary services in real time, ERCOT will improve the efficiency of dispatching resources. This will impact virtual trading in the day-ahead market because power traders will need to account for more precise price signals coming from real-time market adjustments. There could be reduced arbitrage opportunities between the day-ahead and real-time markets since the real-time prices will better reflect actual system needs.
Co-optimization will probably lead to better price convergence between the day-ahead and real-time markets. Virtual traders will have to consider that real-time prices will now include optimized ancillary services, potentially reducing price volatility and the gaps power traders look to exploit.
What Are ERCOT’s Block Products (B)?
ERCOT is introducing block products (multi-hour products), which allow for trading energy and services over set periods. These new products will change how power traders view both day-ahead and real-time markets. In virtual trading, these products might introduce new strategies to hedge positions or capitalize on different price patterns across hours.
Point-to-point (P2P) trading, which involves the financial rights to transmission between two locations, could change because of how block products affect grid congestion and locational marginal pricing (LMP). The introduction of block products might smooth out some of the volatility in congestion pricing, which could affect how traders engage in P2P trades to hedge against or profit from congestion.
How Will This Impact Liquidity and Risk Management?
The introduction of real-time co-optimization and block products adds complexity to how the power grid operates and how prices are set. Virtual traders will need to adjust their strategies to account for the more dynamic pricing system. This might involve re-evaluating risk management practices, as the predictability of prices could change.
With the introduction of block products, there are more opportunities for power traders to use these products to hedge positions taken in the day-ahead market. However, this requires understanding the price patterns ERCOT’s new co-optimization will create.
What About Market Transparency and Strategy?
Real-time co-optimization will provide more transparent and granular data on how resources are dispatched, which could lead to better-informed trading decisions. Traders will need to integrate this data into their models to effectively forecast day-ahead prices.
Virtual traders will have to adapt their models and strategies based on new patterns that emerge from the introduction of block products and co-optimization. This could involve shifting towards more sophisticated models that capture the interrelationship between energy, ancillary services, and transmission congestion.
Summary of Impacts to ERCOT Power Traders
- Changes in congestion pricing due to smoother real-time market operations and the introduction of block products could affect P2P trades.
- Overall, power traders in the day-ahead market will have to adjust their models and strategies to accommodate the more efficient and transparent price signals created by ERCOT’s RTC+B project.
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About the author: Daniel Cullen has more than 10 years' experience in commodity and power markets. The majority of that experience focused on the development and delivery of performance and risk solutions. At Yes Energy, he serves as the product manager for Submission Services, Position Management, and FTR Positions Dataset.
