Energy storage resources and solar capacity helped reduce ancillary services costs and tight system conditions in the ERCOT market in 2024, Potomac Economics said in its recent State of the Market report for the ISO. 

Potomac, which serves as the grid operator’s Independent Market Monitor, said an “influx” of new supply contributed to fewer tight system conditions. Solar and ESRs added 7.5 GW and 5 GW of new capacity, respectively, it said. 

The IMM specifically pointed to ESRs as helping produce the supply increase that reduced costs. The IMM said normalized ancillary services expense dropped to $0.98/MWh of load from $3.74/MWh in 2023.  

ERCOT contingency reserve service’s (ECRS) average price fell to $9.62/MWh from $76.77/MWh but still contributed almost $1 billion in excess real-time market costs. The monitor said the use of ECRS created artificial scarcity conditions by withholding reserves from the real-time market until manually deployed during the seven months after it was implemented in 2023. It said that resulted in an excess cost of more than $12 billion, a claim ERCOT pushed back against. (See ERCOT Board of Directors Briefs: Dec. 19, 2023.) 

“The continuation of these ECRS deployment practices is a cause for concern,” the IMM said. “Most consumers are not directly exposed to these excess costs in the real-time market, but these pricing outcomes factor into future contracts offered by [electric retailers].” 

Average real-time prices, excluding adders, fell to $32/MWh, down about 52% despite a 14% decline in natural gas prices. The IMM said more than 75% of the sharp decline was a result of less frequent ECRS artificial shortages. 

Day-ahead prices averaged $31/MWh in 2024. 

The monitor said real-time co-optimization (RTC), scheduled to go online in December 2025, will improve the issues it raised over market performance and operational risk. A “critical aspect,” the IMM said, is that RTC’s logic will allow the market to go short on real-time operating reserves, with the shortage’s cost defined by set ancillary service demand curves (ASDCs). 

The IMM continues to recommend that the grid operator reconsider its policies for procuring and deploying ECRS.  

It also recommended: 

• • That the ASDCs be reformulated based on the marginal reliability value of each product and that ERCOT incorporate a stochastic (using a random probability distribution) risk methodology for setting target levels for operating reserves. The IMM said embedding this tradeoff in the real-time market-clearing logic will address many of the issues it identified with ECRS deployment. 
  • That policymakers move away from the four-coincident peak (4CP) method — which calculates each consumer’s 4CP transmission tariff rate for the following year based on their load ratio share during the previous summer’s highest systemwide demand 15-minute intervals — and implement a transmission cost-allocation framework that more accurately reflects cost causation. 
  • An uncertainty reserve product provided by resources that can start in two hours or less when reliability is threatened. 
  • A multi-interval, real-time market process that can look ahead and optimize across several intervals. 
  • That ERCOT prioritizes development of market solutions that ensure resource adequacy, given projected load growth and the development lag between price signals and new generators’ commercial operations date.