Why the Need for Energy Storage Continues to Grow in SPP

A combination of more renewable energy resources, coal-fired power plant retirements, and continuing load growth in the Southwest Power Pool (SPP) market should offer strong opportunities for energy storage developers over the next two years and beyond.

Demand for power in the mid US region has grown steadily over the past decade and increased by 5% over each of the last two years, while at the same time SPP increased the reserve requirement of its system last year from 12% to 15%.  Additionally, there is still 25 GW of coal-fired capacity operating in the region that will become increasingly difficult to run economically in the near term.  

Further market penetration by renewable resources - with around 10 GW of solar expected online over the next three to five years to complement the 32 GW of operational nameplate wind capacity already in the region - will ensure that the occurrence of negative energy prices persists across the year.

New Capacity

The latest market analysis from specialist consulting and software firm Ascend Analytics concluded that these factors will create strong and sustained demand for new capacity that can cope with a lot of negative pricing, frequent curtailments, and regular volatility.  

“There is no scenario within SPD where new capacity isn't needed and the premium on flexibility makes an obvious case for storage,” explain Brent Nelson, Ascends Managing Director of Markets and Strategy. “It's very clearly what the market needs now,” he continued.

Capacity Prices

One pre-condition for this to happen, however, will be a big hike in capacity prices. While these have roughly doubled from where they were two years ago - to current level of around USD $4.00 /kW-month - they are expected to more than do so again to incentivize new market entrants.

Nelson said load serving entities in SPP could see capacity prices rise “into the territory” of USD $10 /kW-month, which is the level of the deficiency penalties that utilities in the region face if they do not have sufficient resources to meet their demand. (SPP does not have a capacity market as such, but providers have a capacity supply obligation.)  

Such a sharp increase will be a key part of the revenue stack for storage, with energy arbitrage from the high levels of volatility making up the rest of the revenue stack. Unlike ERCOT, however, SPP's volatility is spread evenly throughout the year instead of being concentrated in a few short periods of extreme price volatility during severe weather.

To read the full story login into Voltility.net. Article written by Andrew Cavenagh, January 3, 2024.

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