ERCOT Energy Market
The generation mix in the Texas energy market has been a combination of traditional fossil fuel-based generation and wind power. However, this is shifting as the rapid expansion of solar development is changing the state’s energy markets. Because of this change, energy storage development is also increasing with solar-plus-storage systems becoming increasingly attractive as costs decline and the market looks to integrate storage into the grid.
While natural gas generation still dominates the Texas energy market with over 59,000 MW of capacity and wind generation has thrived as the leading renewable energy technology with approximately 28,000 MW of installed capacity, the expansion of solar generation has been rapid in recent years. Current installed solar capacity is over 4,200 MW, with 2,000 MW under construction and another 30,000 MW of solar capacity in the pipeline. With the increased focus on solar generation so has come growth in development interest in battery storage. In April 2018, battery storage capacity interconnection was zero and has since exploded to 1,700 MW as of August 2020.
This is notable as for years energy storage was viewed as a dead end due to the classification of storage as generation, resulting in the inability for utilities to own. In addition, there is no capacity market in ERCOT for which storage projects usually contract in other incentive-rich markets. While volatile energy prices have spiked quite high in the summer months, these occurrences have not happened frequently enough to allow a reliable revenue stream from higher market prices that would justify the costs of energy storage.
However, the growing solar and wind projects are increasing the energy imbalances in ERCOT, positioning storage systems to add value by arbitraging low and high energy prices. When this is layered in with other typical battery applications for the ERCOT market like ancillary services via the Emergency Response Services (ERS) program, demand response programs, and energy optimization via demand charge ERCOT coincident peak management, a battery storage project becomes quite viable especially when paired with onsite solar or wind. To further the case for storage, the Public Utility Commission of Texas, or “PUCT”, recently implemented a project for energy storage to participate in the real-time ancillary services, changing the environment and sparking interest by storage developers. Additionally, ERCOT created the Battery Energy Storage Task Force, or BESTF to understand technological requirements and market rules to aid the growth and implementation of battery storage in Texas.
The addition of storage will make traditionally non-dispatchable generation like wind and solar more predictable and reliable. Further, the addition of storage to the grid will help bridge the production imbalance between peak solar-generating hours and peak wind-generating hours. As more cost-effective storage systems are built, the role of coal and natural gas generation will decline. With 14,000 MW of coal capacity still in operation, further contraction should be expected in the next five years as tens of thousands of megawatts of solar capacity comes online.
ERCOT, like much of the country, is experiencing a significant transition to their energy mix. How quickly the transition takes is not certain, but the continued combination and growth of wind and solar along with battery storage ultimately points to the fact that renewables will be the leading resource combination to experience growth in the Texas energy market. What is certain, is that the Edison team will continue to watch the market closely and work with clients to identify and take advantage of profitable opportunities that continue to arise during this transition.