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Battery Buildout in ERCOT to Deliver a Shock

Energy

By Joseph Warner  |  March 17, 2022

While the Electric Reliability Council of Texas (ERCOT)’s grid stands apart from other Independent System Operators (ISOs) in the United States for its energy-only wholesale electricity market, it’s still subject to similar requirements to maintain adequate reserve margins to support the reliability of the grid. As a percentage of total system capacity, ERCOT has more solar and wind capacity than even the California Independent System Operator (CAISO), which presents a need for managing an influx of intermittent generation.

As additional renewable resources are added to the stack, battery energy storage systems (BESS) are being deployed in increasing number and capacity. In this article, we review implications to reserve margins due to the ongoing battery buildout in ERCOT.

Forecasting Capacity, Demand, and Reserves

Reserve margin, measured as a percentage, is defined as the excess of available generating resources over peak load and is an important yardstick for evaluating the ability of the grid to serve expected demand. For many areas, especially across the deserts of the southwestern U.S., this measure is typically most relevant during the hot afternoon and evening hours of mid-summer months, when higher temperatures translate into air conditioning loads in many populous U.S. cities. To communicate this vital metric to stakeholders, ERCOT produces a semiannual assessment of forecasted capacity, demand, and reserves within the ERCOT system, called the CDR Report.

cdr-forecasted-capacity-contributions

Thermal resources maintain a very high level of availability in the CDR’s capacity assessment. Capacity factors for wind and solar resources, due to their intermittency, rely on average historical measures of contributions from prior peak load events. While significant increases in solar capacity steal the CDR limelight from 2022 to 2024, a recent newcomer to the ERCOT generation mix, battery energy storage systems, have begun to represent an increased share. Interestingly, as shown in the chart above, CDR reserve margin calculations don’t currently acknowledge any contribution from this new and growing resource to meet peak load on the grid.

As BTU Analytics examined previously, in CAISO, as installed capacity increases, the role BESS plays on the grid begins to evolve from that of providing ancillary services to providing dispatchable power and peaking capacity. Work within ERCOT continues in revising models to predict the role BESS is expected to play on the future grid, but with BESS deployments only a few years behind CAISO, might we develop some insight from CAISO to predict behaviors in ERCOT?

Impact on Reserve Margins

There are many factors that play a role in battery dispatch to the grid, including transmission congestion, locational marginal pricing, existing obligations for providing ancillary services, and the economics of co-located thermal or renewable resources. However, by examining the aggregate capacity contributions of BESS resources across a selection of the most recent hourly peak load events in CAISO, an average capacity contribution percentage may be derived. Extending this capacity factor to forecasted resources in ERCOT may provide insight into how reserve margins may change after a BESS buildout.

caiso-bess-capacity-contributions-for-selected-peak-load-hours

As mentioned, the latest CDR doesn’t provide any capacity factor for batteries to dispatch to the grid during peak load events, so the “CDR Base” case effectively reports the reserve margin without any BESS contributions. The “CDR Modified” case shows the projected effect on reserve margins assuming the same level of project development in the CDR but with CAISO’s BESS capacity factor applied.

cdr-forecasted-reserve-margins-with-risked-bess-buildout

The other cases consider deployments of BTU’s risked tranches of proposed projects with their corresponding effects on reserve margins, also using CAISO’s capacity factor. It’s unlikely that all these proposed projects ultimately make it to market; however, this exercise is illustrative of how BESS resources may bring meaningful changes to reserve margins once deployed.

Conclusion

While effects from storage are expected to be material as BESS buildout continues, these facilities only make up a portion of the calculated systemwide reserve margin. How do the CDR reserve margin forecasts measure up to operational experiences on the ground when the grid is challenged by congestion, project cancellations, and adverse conditions to facility readiness?

BTU Analytics is a FactSet Company. This article was originally published on the BTU Analytics website.

Disclaimer: This blog post is for informational purposes only. The information contained in this blog post is not legal, tax, or investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.

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Joseph Warner

Energy Analyst

Mr. Joseph Warner is an Energy Analyst at FactSet. In this role, he focuses primarily on power market data and analysis. Prior, he worked on income tax compliance and consulting for private equity-backed upstream oil and gas entities at Moss Adams. Mr. Warner earned a B.S. in Accounting and Financial Management with a minor in Economics from the University of Colorado Denver.

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The information contained in this article is not investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.