Category: Report

A view of Q4 2023 U.S. renewable energy performance

REsurety creates the State of the Renewables Market report every quarter to provide readers with data-driven insight into the value and emerging trends of renewable generation in U.S. power markets. Please fill out the form to access the full report, the Editor’s Note is below.

Editor’s Note:

Emissions (Rates) Ignore (ISO) Borders

As of the end of 2023, Locational Marginal Emissions data is available for all seven deregulated ISOs in the U.S. That additional data coverage is reflected in the later parts of this report. Here, we’re going to dig into what the data can tell us about the current state of the different ISOs and how it can shine a light on the current hydrogen-hourly matching debate.

All the data included in this analysis is for the period November 2022 – October 2023.

1. Renewables projects in CAISO, and particularly solar, had the lowest environmental impact.

There’s already a lot of solar power installed in California, and that means during the day when the sun is shining, solar power is often the marginal generator. That means incremental solar generation is displacing clean megawatt-hours from other solar projects, not fossil-based generators. The average renewable energy project in CAISO during this 12-month period displaced only 234 kgCO₂e/MWh. That’s less than half the emissions impact of the average renewable energy project in PJM.

2. PJM is where renewable energy has the biggest environmental impact.

A combination of relatively low penetration rates for renewables and fewer transmission constraints means there’s an outsized impact for any new wind or solar project in the PJM footprint because it is often displacing fossil-based generators and rarely displacing other renewables. On average, a renewable energy project in PJM displaced 25% more CO₂ than an equivalent project in SPP and almost 40% more than projects in ERCOT.

3. There is a huge range of emissions rates within most ISOs.

It’s perhaps more intuitive to make sense of the differences in average emissions impacts between ISOs – each has its own unique generation stack, load profile, and set of connections with neighboring regions, resulting in different emissions rates for renewables. However, there’s an even bigger range of emissions rates within these regions. This is primarily driven by the unique local transmission constraints within each region and how each of these constraints affects the ability of renewable generation to meet load. Two examples of localized variability in emissions impact are shown in figures 2 and 3. In both southern Oklahoma and western Minnesota, the emissions impact of wind projects is reduced due to local transmission constraints and congestion.

This last point about intra-regional variability is interesting for a number of reasons, but one to specifically call out here is the current debate around the IRS guidance for hourly matching of renewables for hydrogen electrolyzers under Section 45V of the Internal Revenue Code. The latest IRS proposal requires hourly matching of electrolyzer consumption with renewable energy procured within the same ‘region’. While the hourly matching regions don’t precisely match ISO boundaries, they’re pretty close. Therefore, the intra-regional variation in emissions impact for renewable energy projects would likely translate directly to the real-world emissions associated with ‘green’ hydrogen. An electrolyzer could procure renewable energy from a high-performing project in the region and avoid a lot more carbon than the electrolyzer consumes. The more worrying possibility is the opposite scenario – buying power from an underperforming project could mean that the hydrogen produced is actually far from ‘green’.

In addition to downloading the report, you may want to register to attend a webinar on the topic on Wednesday, February 7 at 1pm ET with the editor, Carl Ostridge. He’ll share findings, insights, and host a live Q&A.

Q4 2023 Report Download

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A view of Q3 2023 U.S. renewable energy performance

REsurety creates the State of the Renewables Market report every quarter to provide readers with data-driven insight into the value and emerging trends of renewable generation in U.S. power markets. Please fill out the form to access the full report, the Editor’s Note is below.

Editor’s Note:

A Tale of Two Technologies

When I think of Southwest Power Pool (SPP) I think of wind. Wind met almost 40% of SPP demand in 2022 and new output records have been consistently set over the past couple of years. When I think of SPP I don’t think of solar, though. Solar met less than 0.5% of SPP demand in 2022. And I’ve always found that a little surprising considering the southern SPP footprint has some of the best solar resource in the country (ref: NREL). Maximum solar output this summer in SPP was only 30 MW higher than 2022 while the equivalent metric in ERCOT increased by more than 3,500 MW.

The abundance of wind generators and the lack of solar also means the two technologies look very different when considering two important metrics – the monetary value and the decarbonization impact of each MWh.

Figure 1 shows the capture rates (the value of the wind or solar-weighted MWh compared to around-the-clock MWh) for both price and emissions intensity. We see similar trends in both – wind is capturing less and less of the available monetary value and avoiding less and less CO₂ while the opposite is true for solar.

To understand what’s causing this we can look at the month-hour average prices and emissions rates over the past four years. We see that both prices and emissions rates are highest during the summer afternoons. During these times load is high and often wind output is low, meaning the marginal unit is a thermal generator with higher emissions rates. Of course, these are the same hours when solar output is peaking and that correlation leads to high solar value (in $ and CO₂ avoidance terms) compared to an around-the-clock generation profile. Conversely, the low prices and low emissions rates are occurring (not coincidentally) in hours of high wind output and this drives the prices and emissions rates lower.

On the face of it, this means adding solar to SPP would be a win-win, it would capture relatively high value power prices and would displace thermal generators more often, avoiding more carbon emissions. In Q3 of this year, solar was worth more than $50/MWh at South Hub while wind was worth closer to $20/MWh. During the same period, solar generation also had a 40% larger emissions reduction impact compared to wind.

So why aren’t more solar projects being built? There are a number of challenges, but transmission is a considerable one. The interconnection queue is long and growing thanks to the IRA, and getting an interconnection agreement often requires developers to share large upgrade costs. Further, this analysis reflects the hub values for prices and emissions. Wind projects in SPP suffer some of the worst price basis in the country with some projects seeing $10-20/MWh annual nodal discounts vs. the hub. Investment tax credit (ITC)-qualified solar projects would likely need to curtail output as soon as prices reach negative territory while production tax credit (PTC)-qualified wind projects tend to continue operating far beyond that point.

There’s currently value available for solar in SPP but only if project developers can navigate the complex issues related to transmission, interconnection, and congestion.

Q3 2023 Report Download

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A view of Q2 2023 U.S. renewable energy performance

REsurety creates the State of the Renewables Market report every quarter to provide readers with data-driven insight into the value and emerging trends of renewable generation in U.S. power markets. We use our domain expertise in power markets, atmospheric science, and renewable offtake to analyze thousands of locations and summarize key findings here. All of the data behind this analysis is curated by REsurety’s team of experts and available via our software products. It includes aggregated metrics for wind and solar projects operating in the U.S. All summaries are calculated using hourly-level data, and all energy-weighted price metrics are calculated using concurrent weather-driven generation and energy price time series. Please fill out the form at the bottom of the page to access the full report, the Editor’s Note is below.

Editor’s Note:

June in Texas: High Heat, Not So High Power Prices

I recall the buzz during the summer of 2019 when power prices in ERCOT reached $9,000/MWh for a few hours and the speculation about how prices may have been lower with more solar on the grid. Fast forward to 2023. The hot topic to start the hot summer is instead how power prices may have been even higher without the observed solar generation. Solar energy’s contribution to grid resilience during this summer’s heat waves has even become mainstream news, with headlines about the absence of the power supply scares of previous summers.¹

Indeed, solar capacity in ERCOT has grown over the last few years. Observed hourly solar generation regularly approached 13,000 MWh heading into this summer, compared to a maximum of approximately 10,000 MWh the same time last year (Figure 1). However, despite record breaking demand and a few hours of scarcity prices in June, the average monthly prices remained below the values from last summer (Figure 2). The average power price in June 2023 at ERCOT North Hub was $2 less than in June 2022 despite exceeding the monthly peak demand record by over 4,000 MW.²

REsurety estimates that the average power price in ERCOT this June would have been nearly double the observed value without the additional solar generation. We also estimate that solar resources would have captured 27 percent more of this higher average monthly price, while wind resources would have captured 14 percent less.

Continued growth in solar capacity is expected to further degrade the capture rates for solar in ERCOT, while supporting capture rates for wind and keeping average prices lower for consumers. REsurety’s Weather-Smart fundamentals power price model shows reductions in solar value as solar buildout ramps up and the highest price hours are pushed out to the early mornings and evenings. At the same time, the reduction in power prices during afternoon hours also helps to limit downside risk to wind generation value. The lowest wind capture rates tend to occur in months that experience periods of low wind resource coinciding with periods of high demand from high temperatures.

We continue to watch how solar energy resources will perform with more hot weather still to come. Regardless of how the rest of this summer turns out, the impact that increasing solar penetration is having on markets like ERCOT is already apparent, and increasingly suggests that the near future is fundamentally different from the recent past. We will keep sharing our data findings in these quarterly reports as well as trends and thought leadership on our corporate blog.

Footnotes:

1. The U.S. Power Grid Withstands the Heat, So Far: Electric supplies from renewable energy, hydropower and batteries bolster vulnerable parts. The Wall Street Journal, July 23, 2023.
2. Based on available peak demand records for June 2023 reported by ERCOT.

Q2 2023 Report Download

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A view of Q1 2023 U.S. renewable energy performance

REsurety creates the State of the Renewables Market report every quarter to provide readers with data-driven insight into the value and emerging trends of renewable generation in U.S. power markets. We use our domain expertise in power markets, atmospheric science, and renewable offtake to analyze thousands of locations and summarize key findings here. All of the data behind this analysis is curated by REsurety’s team of experts and available via our software products. It includes aggregated metrics for wind and solar projects operating in the U.S. All summaries are calculated using hourly-level data, and all energy-weighted price metrics are calculated using concurrent weather-driven generation and energy price time series. Please fill out the form at the bottom of the page to access the full report, the Editor’s Note is below.

Editor’s Note:

Ups and Downs on the Power Market Rollercoaster

For me, the story of 2022 was the high average power prices across the U.S. Emphasis on average because the high prices were not driven by individual large weather or market events like Winter Storm Uri in 2021. Yes, there were some weather-linked events, but these really didn’t move the needle at the annual level. The real driver in 2022 was the underlying price of natural gas – Henry Hub prices started the year at ~$4/MMBtu (already high compared to the last few years) and peaked close to $9/MMBtu in the summer. That’s by far the highest natural gas price seen in the post-shale era of the last 14 or so years.

Natural gas is often the marginal fuel in many regions and there’s a strong correlation between natural gas prices and power prices as shown in Figure 2. The historic natural gas prices during 2022 also resulted in power prices reaching their highest annual average in at least the last decade (Winter Storm Uri’s influence in February 2021 excluded).

Those high prices led to large payouts to merchant projects and clean energy buyers. For example, a typical 100 MW wind project with a $30/MWh PPA settling at ERCOT West would’ve paid more than $2M to their buyer by the end of the year. An equivalent vPPA settling at SPP South would’ve paid out more than $3M.

Now, fast forward to Q1 2023 and the world looks very different. Gas prices have dropped more than 50% compared to Q4 2022 and 40% compared to Q1 2022. Power prices in most markets have seen similar decreases, down 20-50% compared to Q1 of last year. That means the same vPPAs that were paying large sums to buyers throughout 2022 are now back to paying the projects. In some cases, buyers cut checks to projects in Q1 that exceeded the checks that they received during the whole of 2022.

The volatility seen in commodity and power markets in the past 18 months is expected to continue. Natural gas fundamentals, new generation interconnection, supply chain challenges, geopolitical turmoil, and increasingly extreme weather are expected to continue causing large ups and downs in the markets and that, of course, means ups and downs for those buying and selling power.

To understand the contributions of the three primary drivers of changing prices and volatility – grid composition, commodity prices, and weather – REsurety publishes Weather-Smart fundamentals power price forecasts each quarter. For the next 20 years the forecasts account for multiple commodity scenarios and for each of those scenarios models how the grid and market will reach under weather conditions representing each of the past 40 years. For example, we forecast this summer’s prices under ‘mid’, ‘low’, and ‘high’ gas scenarios and if the heat of 2011 or the relatively mild weather of 2007 was repeated (and every set of summer conditions in between). This provides a unique view of how both the commodity prices and weather drive market outcomes.

The model predicts there’s approximately a 3x range between the highest and lowest prices averaged for the remainder of 2023. That’s the difference between having a vPPA pay out to the buyer at similar levels to 2022 or continue to pay out to the project in line with Q1 of this year. With this level of volatility, the clichéd investment disclaimers certainly ring true – “past performance is not a guarantee of future performance and prices may go up as well as down.”

At REsurety we’ll be keeping a close eye on how both the commodity markets and weather unfold over the coming months and keeping our Weather-Smart forecasts up to date with the latest data.

Q1 2023 Report Download

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A view of Q4 2022 U.S. renewable energy performance

REsurety creates the State of the Renewables Market report every quarter to provide readers with data-driven insight into the value and emerging trends of renewable generation in U.S. power markets. We use our domain expertise in power markets, atmospheric science, and renewable offtake to analyze thousands of locations and summarize key findings here. All of the data behind this analysis is curated by REsurety’s team of experts and available via our software products. It includes aggregated metrics for wind and solar projects operating in the U.S. All summaries are calculated using hourly-level data, and all energy-weighted price metrics are calculated using concurrent weather-driven generation and energy price time series. Please fill out the form at the bottom of the page to access the full report, the Editor’s Note is below.

Editor’s Note:

For Renewables, Timing is Everything

The final quarter of 2022 closed out with some extreme weather across most of the country and while lots of comparisons were quickly drawn against 2021’s Winter Storm Uri, December of 2022 also provided useful insights into the changing dynamics of power markets as renewable energy penetration rates increase. While the impact on market prices was smaller overall compared to Uri, one of the most interesting outcomes from the winter weather was present in ERCOT and highlighted the fact that timing is everything when it comes to capturing value from renewable energy assets.

The map in Figure 1 shows the “capture rate” potential of solar assets across the ERCOT footprint in December, 2022. Capture rate is the ratio of generation-weighted price and simple average price during the period in question and shows how much of the average price is ‘captured’ by, in this case, solar assets. Immediately visible is the interesting geographic trend across the ERCOT footprint, with the highest solar capture rates occurring in the east and west extremities while the lowest capture rates occur in the center. To understand what’s driving this, we need to look at the underlying data for one specific day.

Figure 2 shows the hourly average real-time market prices on December 23rd, 2022 as well as the generation of two hypothetical solar assets; one in west Texas and another close to the Houston area. The highest prices during this day occurred early in the morning and in the evening, meaning that most of the solar output during December 23rd did not coincide with the high prices. This leads to the very low overall capture rates in December, ranging from ~45-60% across ERCOT. But importantly, the lower prices during the day are not actually a coincidence – peak solar output has more than doubled since 2020 and there was approximately 8 GW of solar generation during the middle of the day on December 23rd, 2022, enough to move the grid out of scarcity pricing mode and back to more “normal” prices. This dynamic also creates values for locations with early sunrises (in the east) and late sunsets (in the west). The difference in sunrise and sunset times in Midland and Houston on December 23rd was approximately 30 minutes, but that was enough to secure an additional $50/MWh of value. Solar assets located close to Houston would have been able to capture the value of the high market prices before the sun came up on most of the existing solar assets further west and prices fell. That $50/MWh difference might not sound like a lot, but considering that solar capacity in ERCOT is predicted to exceed 20 GW by 2025, this type of ‘duck curve’ where solar generation serves to systematically reduce prices during the day is likely to happen with increasing frequency. Therefore, siting solar assets in locations able to naturally take advantage of the ramp hours may become increasingly valuable.

Finally, this shift in ERCOT’s grid mix, price dynamics, and subsequent drop in solar capture rates is predicted by REsurety’s Weather-Smart Fundamentals modeling. REsurety models ERCOT’s grid in 5 different future states, including high storage and net zero, and computes outcomes based on weather data representing the past 40+ years to derive the data in Figure 3 below.

The average solar capture rate in ERCOT is forecast to drop below 100% by 2024, driven by the type of event we’re highlighting here – solar generation is high enough to reduce prices during the day and scarcity pricing is moved to the early morning and evening hours. As ever, timing will be the key to renewable energy value.

Q4 2022 Report Download

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A view of Q3 2022 U.S. renewable energy performance

REsurety creates the State of the Renewables Market report every quarter to provide readers with data-driven insight into the value and emerging trends of renewable generation in U.S. power markets. We use our domain expertise in power markets, atmospheric science, and renewable offtake to analyze thousands of locations and summarize key findings here. All of the data behind this analysis is curated by REsurety’s team of experts and available via our software products. It includes aggregated metrics for wind and solar projects operating in the U.S. All summaries are calculated using hourly-level data, and all energy-weighted price metrics are calculated using concurrent weather-driven generation and energy price time series. Please fill out the form at the bottom of the page to access the full report, the Editor’s Note is below.

Editor’s Note:

Grid Congestion Hurts Project Economics & The Environment

Project developers know well the perils of transmission constraints and grid congestion when it comes to their project’s economics. If you locate your project at a point on the grid with limited availability to move clean electricity to where it will be consumed, local power prices will be much lower than average prices across the wider grid. This phenomenon is often referred to simply as “basis” but we’ll be more specific here and call it “price basis”. Price basis is bad for project economics for two reasons – first, the project’s merchant revenue (the value of electricity sold to the system operator at the point of interconnection) can be vastly reduced and second, if the project enters into a financial agreement to sell their electricity at a hub price (an aggregate across a large grid area) they may end up owing large sums of money that their merchant revenue cannot support.

The magnitude of price basis is hard to predict and, without investment in transmission or energy storage, tends to get worse over time as more wind and solar projects are added to the grid in locations with high resource availability. Developers and consultants spend lots of time, money and effort building models to analyze historical basis and forecast future scenarios to decide where to build projects and inform their economic outlook.

However, the transmission constraints and congestion that drive price basis also lead to what we’ll refer to as “emissions basis”. When a transmission constraint binds in a region with plentiful wind and solar generators, incremental clean energy (behind the constraint) often curtails other existing clean generators rather than carbon-emitting thermal generators elsewhere on the grid. This leads to emissions basis – wind and solar projects subject to transmission constraints avoid fewer tons of carbon emissions per MWh generated than the grid-wide average. In the absence of additional transmission or energy storage infrastructure, building additional wind and solar facilities in these regions has a diminishing environmental impact. Each new facility contributes less and less to the ultimate goal of decarbonization.

The strong correlation between price basis and emissions basis is highlighted in the plot below. Each point represents a wind or solar project in ERCOT or PJM and the values of price and emissions basis is calculated for the period January to July 2022. It’s clear from the plot that the projects with the highest levels of negative price basis have the lowest environmental impact while those with positive price basis tend to displace significantly more carbon emissions from the grid. Of course, there are many nuances to the data beyond this high-level correlation – trends based on location, technology, time of day and season – that REsurety’s Locational Marginal Emissions data can expose.

REsurety calculates Locational Marginal Emissions values at the nodal level with hourly resolution to provide the information necessary for project developers, investors, and offtakers to make informed decisions about where to build or invest in new projects to maximize their revenues and environmental impact.

We’ve expanded this report to provide information on both the financial and environmental value of wind and solar generation in the U.S. We hope you find this report informative.

Q3 2022 Report Download

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