It’s Hot in ERCOT



How Does Temperature Effect LMP Prices?

Author: Velocity Suite Summer Intern

Think it’s always hot in Texas in August? Sure, but this year’s recent heat wave has made temperatures soar, with certain regions hitting 107 Degrees Fahrenheit. Relentless Southern heat is alleviated with conventional air conditioning, however, what happens when stress is induced on the grid during unexpected increases in electrical consumption in periods of extreme heat? This summer’s extreme heat spurred peak electrical demand to hit an all-time high of 69,783.10 MW in mid-August, with the month including three separate instances of record-breaking peak loads. With such high demand, many question the reliability of the grid. Will temperature continue to challenge the efficiency of the grid? Will ERCOT be able to support an increasing load? Will prices sky-rocket? Let’s take a look at what’s happening.

The increase in temperature directly effects the demand for electricity, prompting the grid’s load to increase exponentially between 3 and 7 pm on extremely hot days.

Load V Temp

On Monday, August 10th, ERCOT experienced both the highest temperature and the highest load of the summer, as shown above. Although prices were expected to rise proportionately to the load on this day, the opposite occurred.

RT DAH Pricing

Despite day ahead prices being predicted to sky-rocket to $2,248.49/MWh, real time prices capped at $173.59/MWh even though the load at this time was 69,783.10 MW, an all-time high for ERCOT. Why would real time prices not have increased during this time? One explanation for this price discrepancy attributes the low real time price to accurate load forecasts. Both the two day ahead and day ahead load forecasts were extremely consistent with the actual load.

Load Forecast

This forecasting accuracy implies that ERCOT and electric utilities were prepared for an extremely high load on this day during peak hours, and thus were properly prepared to supply the high demand. Being properly prepared prevents utilities from purchasing more power in the real time market, so prices would not have spiked as there was almost no demand.

Focusing on ERCOT’s zone-specific prices, the North Central zone experienced the highest real time LMP prices on 8/10 at 5:00pm. This zone consistently experiences the highest load in ERCOT because of the high electrical demand in the Dallas/Fort Worth metro area.

Heat Map

The relationship between high load and high prices is apparent in the North Central Zone. Alternatively, this map also shows that high temperature does not necessarily translate to high prices, like in the Southern zone. The three variables are all connected, but not directly related. However, as a general trend, areas with high temperatures are likely to experience high load, and areas with high load are likely to experience high prices.

There are many other factors that influence prices, such as congestion. The chart below shows that certain areas can experience high congestion while others do not.

2015 Congestion

This concentrated congestion explains the zonally-focused high prices that occurred this summer.

Now, you may be wondering why ERCOT had such high day ahead prices if it correctly predicted high temperatures and high loads. ERCOT had not experienced such high loads since the summer of 2011, when the grid experienced extremely high prices peaking around $6,000/MWh. Because of historically high prices for such a high load, ERCOT expected prices closer to the spikes seen in 2011.

However, in 2011, two factors played a significant role in contributing to high pricing: congestion and reserve margins. On the day of highest demand in 2011, congestion was wide spread across the entire ISO, instead of being concentrated to a single flowgate like it was this summer.

2011 Congestion

This congestion could have increased real time prices throughout ERCOT in 2011 because an extremely limited transmission flow existed at a time of extreme demand. Additionally, ERCOT only had a reserve margin of about 11% in 2011, which was insufficient to support the excess demand. Now, with higher reserve margins of about 20% and an additional 4455.226 MW of transmission infrastructure, the ISO is better prepared to deal with extreme events.
Although many remain skeptical about the grid’s potential efficiency, ERCOT has demonstrated its ability to support high demand during the most recent Texas heat wave. As the summer comes to an end, closely watch how ERCOT continues to deal with its high demand especially on hot days, using the LMP Analyst in Velocity Suite.

The Velocity Suite comes with phenomenal customer support to assist in analysis. To learn more about this new data and how to use it please Contact Velocity Support.

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