Tag: Market Report

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

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