July 25, 2024
The settlement impact explained.
Authored by Marion Cundari, Senior Associate, Analytics, REsurety
Senior Associate, Analytics
Did you know that the Electric Reliability Council of Texas (ERCOT) corrects market prices after publication? Often price corrections occur before the price is considered final and published. But what about when price corrections occur after market prices are considered final?
The latter scenario, while infrequent, does happen. In the past nine months there have been two scenarios where prices were retroactively updated. When ERCOT deems a published price to need a correction, the process by which the price is updated is lengthy as it requires the ERCOT board to approve the proposed price change. Often more than a month passes between the price interval to be corrected and the publication of the corrected price.
Given the lag in publication of a corrected price, there is a large potential to impact contract settlement accuracy if price corrections are not consistently monitored and incorporated into settlement.
In the past nine months there were two instances of retroactive price corrections issued by ERCOT. In October 2023, there was a brief price correction that was very large in magnitude (over $2,600/MWh). Additionally, on April 23, 2024, ERCOT made corrections to January and February 2024 prices, changing retroactively yet again, this time for more periods but by smaller amounts. Both examples have the potential to significantly impact contract settlement and a compounding impact on a portfolio of contracts.
The original published price for one hour in mid-October was $2,667.64. It was later corrected, over a month later, to $23.70. This is a large change in price and its impact varied based on project generation over the specific interval. In the below table, example Wind Transaction 1 was generating at peak capacity over the correction interval while example Wind Transaction 2 was not.
In January and February, price adjustments spanned multiple hours on January 15-19 and February 28, 2024. The severity of the price updates was far less drastic than the above discussed October price correction. On average, across the roughly 200 impacted 5-min intervals and ERCOT North, West, and South hubs, prices changed by -$2.19. While the price change was smaller in magnitude, actual cash settlement differences were significant at some transactions. It is worth noting that the impacted intervals were primarily after sunlight hours, therefore negligibly impacting solar transactions.
At REsurety, our calculation services team performs monthly price verification to ensure our settlement calculations always use the correct prices as published by each ISO. This verification process includes monitoring Independent System Operators (ISO) market notices. Price corrections in ERCOT will always be flagged within a market notice from ERCOT before the price eventually gets corrected. REsurety’s verification also includes notification to transaction parties of expected price corrections for previous periods before they show up in settlement reports.
Learn how our calculation services team can assist you, contact us.
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