HOUSTON — ERCOT this December will begin implementing a market design change that has been debated for more than a decade, experts said at the Gulf Coast Power Association’s Annual Spring Conference on April 14.
The real-time co-optimization (RTC) of energy and ancillary services means that ERCOT’s security-constrained economic dispatch will solve for both at the same time. Vice President of Commercial Operations Keith Collins said it could save billions of dollars a year in operating the grid, with a study finding RTC plus batteries (RTC+B) could save between $2.5 billion and $6.4 billion annually.
“Ultimately, there’s a lot of benefit this is going to derive to the market, to the ratepayers and consumers,” Collins said. “And you see that this is something that, while it’s been in the works for a long time, we are essentially at the dawn of the RTC location.”
The big difference in the potential benefits has to do with the years the market change was “back cast” for testing, which included the summer of 2023, when conditions in ERCOT were tight and prices were high, Collins said.
R Street Senior Fellow Beth Garza was a big supporter of the move when she was ERCOT’s Independent Market Monitor, saying she got the grid operator and the Texas Public Utility Commission on board with the market change in 2018. The biggest change since that time has been the growth of storage, with 11 GW now competing in the markets.
“This idea of ‘RTC plus B,’ in my mind, has become ‘RTC because of B,’” Garza said. “For storage to be able to easily move into and out of providing energy versus capacity for ancillary services needed something different. And here it is.”
The change will save money by dispatching a plant that had reserved some capacity for ancillary services in the energy market and then shifting the ancillary service to a more expensive plant, lowering the overall cost of power, according to ERCOT.
“We are getting more expensive ancillary services,” ERCOT Principal of Market Design and Development Dave Maggio said. “So that can be a question of, is that necessarily a good thing? And the answer in this case is, yes, it is worth getting more expensive ancillary services because of the overall decreasing energy price.”
The change also comes with a new offer cap in the energy markets, at just $2,000/MWh, down from the current $5,000/MWh. Prices can still go above $2,000/MWh, but as in the FERC-regulated markets, that will only happen when the market is running short. Scarcity pricing will be handled through the “ancillary services demand curve,” which will replace the operating reserves demand curve (ORDC), Maggio said.
While RTC is set to go live Dec. 5, ERCOT is going to be spending the next seven months getting ready for it with market trials starting May 5, and a market notice explaining them is due soon, said Matt Mereness, the grid operator’s senior director of market operations and implementation.
The training will involve weekly calls with market participants and, starting in September, trial runs of the new market design that will cover the morning ramps, Mereness said. ERCOT ran similar tests 15 years ago when it transitioned to a nodal design from zonal.
“Who was here for the nodal go-live 15 years ago?” Mereness asked the audience. “Now raise your hand if you did that. Well, the good news is it’s not that big, but this is still the biggest paradigm shift we’ve had in 15 years.”
The move to RTC is going to mean more efficient energy and ancillary services markets, which means that to drive more resource investments, the market will need to have more scarcity events that drive prices high and send price signals for investments, said NRG Senior Director of Regulatory Affairs Bill Barnes.
“We are becoming more dependent on the demand curve for price elevation,” Barnes said. “I think that’s a good thing. … When we first started, there wasn’t an ORDC. We were solely dependent on submitting high offers. As we’ve evolved over the past 20 years, we’ve moved more towards a demand curve approach, which to me more aligns the price formation with the actual fundamentals of the market, versus one participant deciding to submit the price of the cap on a random day, which can be not a good thing.”
While the move to RTC+B will influence price formation in ERCOT’s markets, consultant Eric Goff said generation investments in the near future are going to be driven by large loads like data centers coming to Texas.
“The reason, among others, that large loads are attracted here is because you can transact in this market,” Goff said. “You can get what you want without having to ask for too much permission, and if those large loads contribute to higher prices because of their demand, which they have been, in the long run, then you get to a price that reflects the cost of entry.”
