The analysis highlights dramatic inefficiencies caused by the new ancillary service and resulting “enormous increases in market costs.”
Anew ancillary service has led to artificial energy scarcity on the ERCOT grid and likely raised wholesale costs from $8 billion to $10 billion in only three months, according to a new analysis.
Provided by Carrie Bivens, the state’s Independent Market Monitor for the ERCOT Market, the analysis highlights dramatic inefficiencies caused by the new ancillary service and resulting “enormous increases in market costs.”
By way of background, ancillary services are provided by generators and other resource entities and acquired by ERCOT on a regular basis to maintain minute-by-minute system reliability. The new service, which ERCOT launched in June, is known as the ERCOT Contingency Reserve Service, or ECRS, and was designed to tap supplies that can come online within 10 minutes. The ECRS is the first new ancillary service to have been delivered by ERCOT in two decades.
But Ms. Bivens, in her report, found that ECRS has led to “shortage pricing for energy and (ancillary services) when the market is not short.” She released her findings in advance of an upcoming ERCOT working group meeting, along with various suggested interim short-term fixes.
Costs May Be Greater
While her $8 to $10 billion estimate for increased costs from ECRS is substantial, Ms. Bivens noted that that figure likely will increase. She noted that the cost of the new service already has surpassed the cost of other ERCOT ancillary services during 2023 — and by a wide margin — even though the ECRS was only implemented a few months ago.
She noted that ECRS procurement has significantly increased demand for other ancillary services, and this, in turn, has reduced liquidity in the day-ahead market and resulted in inefficient day-ahead ancillary services price spikes.
The Bloomberg news service on September 14 also published an analysis showing ECRS was responsible for 2,000 megawatts of relatively cheap power sitting idle on the afternoon of June 20, when real-time prices soared to more than $4,500 per megawatt-hour.
How ERCOT decides to procure reserves through ancillary services “can substantially affect the market outcomes … and costs,” said Ms. Bivens. As such, she called in her report for a holistic review of all ancillary services, including a reconsideration of the number of megawatts to procure under the ECRS.
In Texas, end-use retail energy customers do not immediately feel the effects of wholesale energy price increases, but will eventually with the expiration of their fixed-rate electricity contracts.
Ms. Bivens report can be found online at https://www.ercot.com/files/