Additionally, the recently implemented Real-Time Co-Optimisation Plus Batteries (RTC+B) market changes introduced to ERCOT have also brought major shifts in the market.
Ascend’s newly issued ERCOT Market Report Release 5.3 describes ERCOT’s revenues as a ‘roller coaster’, but highlights this as a feature, not a bug of its design.
Dorris says, “In our industry, there are a few truisms. Market expectations serve as the best estimates of future outcomes, and this generally holds true. Otherwise, you’re essentially debating the market as a speculator. We are challenging this assumption by highlighting a unique market circumstance where the on-peak and off-peak forwards—these monthly energy blocks—differ.”
He continues, “On-peak typically covers 16 hours a day, five days a week, while off-peak covers the remainder, roughly aligned with daylight hours during summer. We claim this usual principle doesn’t apply here. In our experience, such an approach is extremely rare. Normally, risk management assumes the forward price matches the expected spot price overall. But now, we see an imbalance between buyers and sellers.”
According to the report, since ERCOT does not have a capacity market or centralised planning, scarcity conditions are needed to encourage new entry, but are naturally unstable. Market participants should use hedging strategies to minimise volatility and support 2026, which Ascend anticipates will resemble 2024 more than what the forward market predicts.
Dorris notes, “It’s a roller coaster because: do you have the weather to support it? Yes or no, depending on the summer. The reserve margin sometimes supports it. Sometimes you have tight conditions, sometimes it’s very clear we’re going to be fat for the next summer, probably two, and that will mean very limited scarcity.”
“To make your payments traditionally, you need scarcity conditions. The roller coaster is when it doesn’t happen. The lows last a year or two or three. In this case, it will likely be for summer ’24, ’25, ’26, and possibly ’27. It’s a four-year low.”
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