February 2, 2022
A Rising Tide Lifts Many (But Not All) Boats – authored by Blair Allen & Matt Livingston
The fourth quarter of 2021 was notable for its unusual highs and its unusual lows. Power prices at projects across the nation were sky-high relative to recent history, largely driven by elevated natural gas prices. At the same time, some wind and solar projects experienced record levels of negative price frequency, limiting the benefits of the higher price environment.
No ISO experienced this dynamic more than ERCOT, where both wind and solar shape declined relative to the 5 year average across every hub. Solar in particular stood out, with West Hub seeing a double-digit percentage point decline. This decline is noteworthy for what it may signal about coming changes in the market: solar’s rapid growth in ERCOT is eroding the premium shape profile it has historically enjoyed.
This negative relationship between renewable supply and market prices is well established for both solar and wind. But as the amount of renewable energy climbs higher (and the benefits of tax incentives linger), the frequency and magnitude of negative prices is increasing into new, record setting territory. This past quarter saw more negative price intervals in ERCOT West than in any quarter prior.
Looking forward, we expect these challenges to be moderated somewhat by the rapid growth of storage. Exactly how much the two will balance out, time will tell. But for the near future, we expect that renewables will continue to experience widening levels of participation in the bounty that high gas prices have brought to energy markets.
Please download the full report. We hope you appreciate the insight.
– Blair Allen, Director of Product Management and Matt Livingston, Senior Associate
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