Electricity Market Prices for Day-Ahead Ancillary Services and Energy: Texas

32 Pages Posted: 27 Mar 2019

See all articles by Jay Zarnikau

Jay Zarnikau

Frontier Associates LLC

C.K. Woo

The Education University of Hong Kong

Shuangshuang Zhu

Frontier Associates

Ross Baldick

University of Texas at Austin - Electrical and Computer Engineering

Chen-Hao Tsai

Midcontinent Independent System Operator

Jingwei Meng

University of Texas at Austin

Date Written: March 26, 2019

Abstract

Applying a regression-based approach to a large sample of hourly observations for the seven-year period of January 1, 2011 to December 30, 2017, we explore determinants of day-ahead market (DAM) prices for ancillary services (ASs) and energy in the Electric Reliability Council of Texas (ERCOT). For each GW increase in responsive reserve (RRS) or nonspinning reserve (NSRS) procurement quantities, we estimate price increases of about US$3.47 per MW per hour and US$5.63 per MW per hour, respectively; while the cost of an additional 1 GW of regulation up (REGUP) and regulation down (REGDN) is a much higher US$17 per MW per hour and US$31 per MW per hour, respectively. A US$1/MWh increase in the DAM energy price tends to increase RRS and REGUP prices by nearly US$1 per MW per hour, about twice the estimated impact for NSRS that is not necessarily online when selected. The participation of interruptible loads to provide RRSs reduces the RRS price, and this effect increased nearly six-fold from the first to the second half of our sample time period. An increase in wind generation tends to decrease AS prices because it reduces the DAM energy price via the merit-order effect. Hence, Texas’s wind generation expansion has not raised ERCOT’s AS prices in our sample period, which is characterized by a stable AS requirement and declining natural gas prices. Going forward, however, Texas could face AS cost escalation due to the high REGUP and REGDN prices, should ERCOT’s requirement and procurement of those services increase due to rising renewable production.

Keywords: electricity prices, day-ahead market (DAM), ancillary services (ASs), Texas, Electric Reliability Council of Texas (ERCOT)

Suggested Citation

Zarnikau, Jay and Woo, C.K. and Zhu, Shuangshuang and Baldick, Ross and Tsai, Chen-Hao and Meng, Jingwei, Electricity Market Prices for Day-Ahead Ancillary Services and Energy: Texas (March 26, 2019). Journal of Energy Markets, Vol. 12, No. 1, 2019. Available at SSRN: https://ssrn.com/abstract=3360335

Jay Zarnikau (Contact Author)

Frontier Associates LLC ( email )

1515 S Capital of Texas Hwy
Suite 110
Austin, TX 78746-6544
United States

C.K. Woo

The Education University of Hong Kong ( email )

Department of Social Sciences
10 Lo Ping Road, Tai Po, New Territories
Hong Kong
Hong Kong

Shuangshuang Zhu

Frontier Associates ( email )

1515 S Capital of Texas Hwy
Suite 110
Austin, TX 78746-6544
United States

Ross Baldick

University of Texas at Austin - Electrical and Computer Engineering ( email )

2317 Speedway
Austin, TX 78712
United States

Chen-Hao Tsai

Midcontinent Independent System Operator ( email )

2985 Ames Crossing Rd
Eagan, MN 55121
United States
6516328400 (Phone)

Jingwei Meng

University of Texas at Austin ( email )

2317 Speedway
Austin, TX 78712
United States

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