Understanding the ERCOT Contingency Reserve Service (ECRS): From Pricing Dynamics to Storage Dispatch Behavior

February 22, 2024

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Key Takeaways

  • The introduction of the ERCOT Contingency Reserve Service (ECRS) presents a valuable revenue opportunity for storage assets in a landscape of increasingly saturated ancillary service markets.  
  • The majority of ECRS calls occurred during the summer months, with roughly 80% of calls lasting two hours or less.
  • ECRS prices reach their highest levels in summer months and during the late afternoon and early evening, when net load ramps become most pronounced. Given the predictability of net load ramps on a seasonal basis, Ascend expects this trend to continue.
  • The value of participating in these markets continues to converge towards the value of energy arbitrage during 'calm' pricing periods. As storage continues to saturate these ancillary markets, storage operators will need more sophisticated operating and bidding strategies in order to maximize revenue.

ECRS - A New Way to Address Net Load Uncertainties

ERCOT introduced ECRS as a new ancillary service product on June 10, 2023. The first new ancillary service in ERCOT in over a decade, ECRS was developed to address net load uncertainties caused primarily by increasing intermittent renewable energy sources. Principally, ECRS supports the integration of renewables and longer-duration storage projects into the grid. It compensates for the limitations of existing ancillary services that address only short-duration forecasting errors. High ECRS prices during the summer of 2023 provided a significant revenue opportunity for storage. However, outside of these months, ECRS has priced very similarly to ERCOT's Responsive Reserve Service (RRS), with both ancillary products slowly converging to the value of energy arbitrage in ERCOT. To understand the potential of ECRS as an upside for near-term storage projects, this paper analyzes ERCOT's ECRS utilization strategies, ECRS market size variation across hours and seasons, operational characteristics of storage in ECRS, ECRS pricing dynamics, and the evolution of ECRS usage from its inception through the end of 2023.

ECRS - Size, Timing, and Changes

The ECRS market exhibits both intra-day and seasonal variation in procured capacity and demand. As Figure 1 shows, ECRS procurement reaches its highest levels from 8 a.m. to 7 p.m., with the average hourly procurement reaching its peak of around 2,500 MW at 9 a.m. The overall average ECRS procurement settled at approximately 1,900 MW across all hours. Notably, the ECRS market constitutes around 25% of ERCOT’s total ancillary market depth by MW volume. While regulation and RRS cater to shorter duration ancillary needs, ECRS plays an important role in meeting the grid’s long-duration ancillary needs.

Figure 1: Average hourly ECRS procured from June 12, 2023 to January 31, 2024

Figure 2 shows that procured ECRS capacity was 27% higher during the summer than the fall and winter, demonstrating a distinct change in demand between these periods, most significant in the afternoon and evening. The initial month of ECRS availability as a market product did not significantly differ in procurement levels from the subsequent summer months, despite much more extreme weather in the later summer months.

Figure 2: Average hourly ECRS procured by product maturity and seasonality

The distribution of hourly ECRS procurement reveals a bimodal trend, with frequent hourly quantities procured around 1,500 MW and 2,400 MW, shown in Figure 3 and reflective of the two-tiered intra-day profile shown in Figure 1. Average hourly procurement patterns remained relatively stable throughout the first seven months following the release of ECRS; Ascend does not expect this to significantly change in the near future. These time-varying procurement patterns highlight the importance of advanced prediction and bidding algorithms to maximize total revenue across all market products under uncertainty.

Figure 3: Distribution of hourly ECRS procured from June 10 to December 31, 2023

ECRS Dispatch - Different Months, Different Revenue Opportunities

ECRS calls help increase grid frequency during net load or contingency events. These calls have occurred more frequently than RRS calls given the large net load ramps ERCOT needs to manage during the summer months. Figure 4: Duration of ECRS calls and the cumulative proportion of these calls shows that roughly 80% of ECRS calls have lasted two hours or less; calls that last longer than two hours would require dispatching resources on a rolling basis.

Figure 4: Duration of ECRS calls and the cumulative proportion of these calls

Figure 5: Duration of ECRS calls with the average RT Energy Price and ECRS price during these calls shows that both LMP and ECRS prices increase as the duration of the ECRS call increases. Prices naturally rise during longer calls to reflect the scarcity of available resources during large net load ramps (i.e. renewables drop in the evening while the system load remains high) or contingency events. Requiring up to two hours of constant power output for ECRS incentivizes longer-duration storage and the buildout of more dispatchable resources.

Figure 5: Duration of ECRS calls with the average RT Energy Price and ECRS price during these calls
Figure 6: The average, minimum, and maximum duration of ECRS calls during each month

Figure 6: The average, minimum, and maximum duration of ECRS calls during each month shows that calls occur most frequently and for longer durations during the summer months. In August, the median duration ECRS call lasted approximately 90 minutes. In all months outside of August and September (where a majority of calls were in the first week of September), ECRS calls had a median duration of less than 20 minutes. Fewer calls mean less revenue from dispatching in the energy market. Taking a granular look into the different months highlights the wide disparity of ECRS market characteristics.

Having less than a year of ECRS data makes it difficult to discern whether the characteristics of these calls during the summer of 2023 were anomalous or should be expected going forward. Regardless, understanding the risk-return tradeoffs from the frequency and magnitude of calls remains important for storage operators to proactively manage BESS state of charge.

ECRS – A Remarkably Consistent Price Shape

Figure 7: Month-hour shaps of ECRS prices in 2023

Generally, ECRS procurement during the morning ramp remains as high as during the evening; ECRS prices, though, do not follow this dynamic. Figure 7 shows the month-hour average prices for ECRS in 2023. Prices were much higher in June and August than in other months. The month-hour plot shows that ECRS prices clear below $5/MWh for most of the day, with prices rising in the late afternoon and evening as solar generation drops, power demand stays high, and wind generation begins to rise. Given that ECRS has been live for less than a year, determining long-term trends remains difficult. Thus far, however, the price shape has been remarkably consistent across months with the exception of January, where two days of morning prices above $800/MWh shift the hourly peak to 9a.m.. Given the consistent flexibility needs during the net load ramps that occur at sunset, Ascend expects these price trends to continue, with ECRS prices near $0/MWh during most of the day, a sharp rise during the afternoon and evening to handle solar net load ramps, and significantly elevated prices during extreme weather and high power prices.

Storage Participation in ECRS During the 2023 Heat Wave

In general, storage bids and clears dynamically into ECRS throughout the day. In ERCOT’s most volatile month of 2023 (August), cleared storage bids varied from 5% to 30% of total ECRS procured, as reflected in Figure 8. The figure also shows that during periods where ECRS calls occurred, a higher percentage of the ECRS procured was provided by energy storage resources.

Figure 8: ECRS calls and storage ECRS bids cleared as percentage of total ECRS procured, August 2023

On a month-hour view, cleared storage bids as a portion of total ECRS procured proves to be highest in the afternoon and early evening. Figure 9: Storage ECRS bids cleared as a % of total ECRS procured and prices, August 2023 shows that this percentage reaches its highest level during peak ECRS price hours, but also in the preceding hours. As some batteries move out of low real-time energy price hours, or charging windows, they shift into ECRS participation.

Figure 9: Storage ECRS bids cleared as a % of total ECRS procured and prices, August 2023

ECRS Revenue Implications for Storage

RRS has traditionally been a large component of the revenue stack for storage with historically high prices that have acted as an incentive for storage buildout. As storage buildout has grown and saturated the RRS market, RRS prices have declined relative to energy prices. Whether ECRS revenues can replace lost RRS revenues depends on multiple factors. While many batteries in ERCOT have a one-hour duration, ECRS carries a two-hour state-of-charge (SOC) requirement. Figure 10 compares the around the clock (ATC) ECRS revenues with no energy market revenues from ECRS calls, against RRS revenues for a battery providing only that ancillary service along with the cumulative RTB60 and RTB120 (perfect foresight for one-hour and two-hour storage revenues cycling once per day with no RTE losses) for the average power hub (HB_BUSAVG) in ERCOT. While ATC ancillary participation does not necessarily reflect a realistic market participation strategy, it offers an indicative view of heavy ancillary participation with a focus on one product. In the comparison, ATC ECRS outperforms the RTB120 by 84% and outperforms ATC RRS by 65% (6/10/2023-1/31/2024). Because one-hour batteries can only participate in ECRS at half capacity, Figure 10 also shows one-half of the ATC ECRS revenue to represent the ECRS revenue potential for one-hour storage assets. This half-revenue graph shows that ECRS participation for a one-hour battery provides similar revenues to RRS, likely reflecting many one-hour batteries de-rating to serve ECRS.  

The 'ECRS ATC w/ Energy Calls Revenue' line shown in Figure 10 reflects the potential revenue upside when ECRS calls were made to dispatch assets into the energy market. Simply intended to serve as a lens through which to assess the added value from ECRS calls, the graph does not account for storage duration. The ATC Revenues with energy market dispatch from ECRS calls are 9% higher than purely ATC ECRS Revenues. However, with the added value there also comes additional risk around an ECRS call depleting SOC, which could leave the battery unable to fulfill later obligations. This risk becomes especially apparent for storage resources, given that the duration of the asset limits their output. Optimally addressing this risk requires understanding the fundamental dynamics that underpin when ECRS dispatches into the energy market, then tailoring a bidding strategy around the associated risk.

A look into CAPEX costs can provide a simple heuristic for comparing the revenue opportunities by duration. According to NREL’s ATB report, one-hour storage costs were approximately $625/kW and two-hour storage costs were approximately $1040/kW, leading to a 67% higher cost for two-hour compared to a one-hour battery. With the need to derate a one-hour battery in ECRS, the two-hour battery had 100% higher revenues than the one-hour battery with ATC ECRS participation. Two-hour battery ATC ECRS revenues came in at 65% higher than the ATC RRS revenues. In both cases, the extra duration would have been worth the extra costs incurred, without considering energy revenues and not accounting for the added difficulties of managing SOC with a one-hour battery. While an overly simplistic view into project costs and revenues, these 'back of the envelope' calculations help illuminate why most ERCOT developers are favoring two-plus-hour batteries over shorter duration assets.  

Figure 10: Revenues from RTB60, RTB120, ATC ECRS, ATC ECRS with revenue from calls into the energy market, ATC RRS, and one-half ATC ECRS from 6/10/2023-1/31/2024  

These striking differences in revenue highlight the strong revenue premium that ECRS provided for two-hour storage assets during the summer of 2023 in ERCOT. However, Figure 11 shows these same data from September 12, 2023 onwards, after the most volatile pricing events occurred in ERCOT. In this period, the differences in revenue between ancillary participation 'strategies' prove to be much smaller. Additionally, there only exists a roughly $0.09/kW-year difference between ATC ECRS revenues and ATC ECRS revenues with energy market calls.

Figure 11: Revenues from RTB60, RTB120, ATC ECRS, ATC ECRS with revenue from calls into the energy market, ACT RRS, and one-half ATC ECRS from 9/12/2023-1/31/2024

For this time period, ATC ECRS has higher revenues by $13.38/kW-year (51%) and $4.41/kW-year (12%) compared to RTB120 and ATC RRS, respectively. This highlights the variation in added value from the ancillary services market: stressful grid periods offer significant upside to be gained from active management of the storage asset and optimization of revenue streams. During times of low market prices and volatility, the revenue differences between different strategies become much less pronounced and should continue to equilibrate as more storage comes online in ERCOT.  

The change of the ECRS/RRS price ratio over time further underscores this point, which Figure 12: ECRS to RRS price moving average and hourly ratio shows. From June to early August the ECRS price consistently more than doubled the RRS price, indicating added value even for one-hour batteries. However, after the very volatile summer, the ECRS market calmed and the moving average ratio of ECRS to RRS declined to below two. This implies that over the course of 2023, on average, it was not economic for one-hour storage to de-rate in order to access the ECRS market.

Figure 12: ECRS to RRS price moving average and hourly rate

Maximizing Value in ECRS – A Clear Need for Bid Optimization Strategies

ECRS prices were high in the summer of 2023 which led to great revenue opportunities for storage. However, the value of ECRS did not distribute evenly across the year. June, August, and early September accounted for a majority of the value in this market. After these summer months, ECRS priced very similarly to RRS and, accounting for the duration requirement, it proved more economic for one-hour storage to participate in RRS than ECRS. ECRS calls into the energy market also occurred much more frequently during the high-priced summer months. This further contributes to the heterogeneity of opportunity in the ECRS market because prices in the energy market tended to be higher during ECRS calls to reflect the scarcity of resources that can serve load during net load ramps or contingency events.

Storage operators will gain value from understanding the shifting dynamics of the ECRS market. The use of advanced prediction and bidding algorithms, such as that provided by Ascend Analytic’s SmartBidder, will allow operators to maximize total revenue across all market products under uncertainty.