The new report noted that 2025 was marked by increases in overall market size, in energy demand and in market reserves. Price spikes also occurred 40 percent less often in 2025 than in 2024.
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Each spring the Independent Market Monitor for ERCOT releases a State of the Market report, as required by law. These annual reports identify perceived flaws in ERCOT market design, provide recommendations for wholesale electricity market reforms, and include reams of otherwise useful data. The IMM released its latest report, which covers the ERCOT market during 2025, late in May.
Below we summarize some of its findings. The full report can be found online at the Potomac Economics website, www.potomaceconomics.com.
Overview
The new report noted that 2025 was marked by increases in overall market size, in energy demand and in market reserves. Price spikes also occurred 40 percent less often in 2025 than in 2024.
Average electricity demand in 2025 was approximately 6.1 percent higher than 2024, an increase of approximately 3,205 megawatts (a megawatt is sufficient electricity to power about 200 homes on a hot summer day). Loads in West Texas continued growing at a much higher pace than the system-wide average, rising 12.3 percent year over year. Demand from oil and natural gas operations and data centers — particularly crypto-mining operations — largely drove this higher demand. Crypto-currency load growth alone also accounted for approximately 4,600 megawatts in 2025.
The IMM noted that solar and energy storage sources made up most new entrants into the ERCOT market in 2025, with more than 6,000 MW of new solar capacity commercialized in 2025. Annual solar generation also increased by nearly 50 percent in 2025, as compared to 2024. “The share of total generation produced by solar resources increased from 10.4 percent in 2024 to 13.9 percent in 2025,” the report stated.
Meanwhile, the rise in Energy Storage Capacity was even more dramatic, according to the report. It identified more than 17,000 MW of new installed Energy Storage Capacity in 2025, or almost 80 percent more from the end of 2024.
Significantly, the IMM noted that changes in supply and demand increased the average level of operating reserves in the ERCOT market. This continues a trend first observed in 2022, according to the IMM. “Since then, the annual increase in supply has significantly outpaced increases in demand, resulting in a sharp decrease in the frequency of genuine shortage conditions,” the report noted.
This supply expansion also put downward pressure on the all-in price of electricity in the real-time market. The report noted that the all-in price of electricity is generally heavily influenced by the price of natural gas, which is the most used fuel in the state’s generation fleet. However, in 2025, the price of natural gas increased by 61 percent, while the all-in price of electricity increased by less than 14 percent. The disparity reflects the effect of the surplus supply of energy in the market, according to the IMM.
Real-Time Co-Optimization
The IMM’s report also highlighted the introduction of “real-time co-optimization,” or “RTC,” as the most noteworthy real-time market developments of 2025. Under RTC, the real-time market simultaneously procures energy and ancillary services, thereby allowing ancillary services awards to be adjusted in real-time to reflect changes in system conditions. The IMM’s report says that the RTC has functioned as expected, without any major malfunctions. However, the IMM did identify some technical issues with the real-time ancillary price formations. (For more about the RTC, see the fact sheet here.)
Ancillary Services
The report noted that ERCOT’s updated practices have raised its Ancillary Services requirements to more than double the quantity needed to achieve a reasonable standard of reliability. “This includes (2,000 MW) of reserves that provide virtually no incremental reliability value in terms of reducing the probability of load shed,” the report noted. (For more about Ancillary Services, see the ERCOT glossary here.)
Transmission Congestion
The annual cost of congestion in the day-ahead and real-time markets increased by 26 percent and 36 percent, respectively. This reverses a three-year trend of declining annual congestion costs. Among reasons cited for the increase are higher congestion in the West Zone (where transmission projects have not kept pace with large increases in renewables and Permian Basin demand) and increase in natural gas prices (which is the fuel used most frequently for resources that manage congestion).
As noted in the report, transmission congestion occurs when power flows are restricted by limit on power lines, transformers, and other transmission facilities. When flow over a transmission facility reaches its limit, the market shifts generation to higher-cost units to alter the flow of power on the grid. This means that congestion prevents the lowest-cost power from serving consumers.
Out of Market Actions
Despite high operating reserve levels in 2025, out-of-market actions meant to address operational challenges increased substantially. The report focused particular attention on the Reliability Unit commitment process, noting that RUC resource hours increased by176 percent in 2025 from the previous year. “This increase in out-of-market commitments through RUC is a fundamental feature of ERCOT’s conservative operating practices and has raised substantial concerns from stakeholders,” the report noted.
Competition and Market Power
The IMM evaluates potentially uncompetitive market power from two perspectives — whether it exists at all; and if it does, whether market participants have attempted to exercise it. According to the report, the ERCOT market has registered a downward trend in uncompetitive hours over the last three years. The IMM attributes the positive development to milder weather and a large influx of energy storage resources. The report noted that potential economic withholding occurs frequently but has relatively little impact on the market. “Despite the positive evidence of competitive conditions in the ERCOT market, we continue to recommend system-wide market power mitigation,” the report noted.
Resource Adequacy
The report notes that Winter Storm Uri reliability issues and high projected load growth from data center development have contributed to heightened concerns about potential resource adequacy shortfalls. It noted that load projections for 2030 range from 138,000 MW to 209,000 MW. (For context, the 138,000 MW projection would reflect an increase of 62 percent over current peak load). Any increase within those ranges cannot be accommodated by current installed capacity, the report noted. “This suggests that a resource adequacy constraint should be applied to the load interconnection process so that ERCOT does not approve an amount of new land that is physically infeasible,” the report noted. “New load that cannot be accommodated in one year can be deferred to a later year.”
The IMM noted that ERCOT has implemented a patchwork of changes meant to correct what it perceived as market shortcomings. However, all these changes have a common flaw: they compensate entities outside the energy or ancillary services market to provide additional supply. The IMM suggested in the report that this development is counterproductive because it reduces the amount of shortage revenues that investors need to justify new generation investment. “Allowing these types of services/products … will lead to more apparent shortcomings and gaps to fill with additional out-of-market programs,” the report noted.
Recommendations
The IMM made more than a dozen technical recommendations to improve the market. Among them was a call to improve the procurement and pricing of ancillary services, to establish real-time offer requirements and penalties, to reconfigure load zones to reflect current congestion patterns, and to eliminate the “small fish rule” that judges certain generation facilities to small to commit market power abuse.
You can find the 2025 State of the Market report here.