Determining which ERCOT Power Plants to Watch this Summer: The Leading Indicators of Scarcity Prices

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With ERCOT once again facing tight reserve margins, traders are turning their eyes to where the generation could fall short on days with high load. Yes Energy tasked our chief economist, Dr. Scott Holladay, to dig into our data. He found some key areas where traders should be focusing their attention this summer.

Background:

In March, ERCOT released its preliminary Seasonal Assessment of Resource Adequacy (SARA) report for Summer 2019. The report stated that “In all of the scenarios studied, we identified a potential need to call an energy alert at various times this summer.” An alert allows ERCOT to call for actions to alleviate the lack of generation capacity including:

  • demand response products

  • tapping neighboring regions for generation

  • asking consumers to conserve energy

ERCOT also has two Real-time energy price adders it can use to incentivize generation when reserves are low. Real-time adders have been assessed in less than half the days over the past year. Of the days where Real-time adders were applied, only 35 had adders that exceeded an average of $1/MWh over the full day. That small bucket of days had an outsized impact on PnL. Over the last year, Hub North has exhibited an average day-ahead bias of $3.30/MWh. Filtering to days with adders above $1/MWh on average across the entire day, Hub North had a Real-time bias of $0.50/MWh. As the adders increase to $10/MWh, that average Real-time bias grows to $20 per MW/h.

Using ERCOT Security Constrained Economic Dispatch (SCED) data, we can identify the relationship between generation and ERCOT adders. SCED data is the real-time market evaluation of offers to produce a least-cost dispatch of online resources. Some plants ramp in anticipation of an energy alert. Ramps at those plants indicate big adders are on the way. Other plants may curtail output, leading to an energy alert and big adders. With detailed generation and price data, it is easy to pick out the signals that adders are coming to the market.

However, ERCOT SCED data is released on a 60 day lag, so the relationships in the data might be easy to find, but they are hard to trade on. Using Live Power’s 1 minute generation data, traders can get a signal that the plants at the top of the gen stack are ramping and adders are likely on the way.

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Research & Findings:

Dr. Holladay leveraged Yes Energy’s DataSignals API and vast database to build a dataset to analyze in Python. He queried two years of SCED data for 21 key generators in ERCOT along with the ERCOT Price Adders. With this data, he computed the relationship between changes in the generation at the ERCOT power plants and the presence and strength of price adders.

The relationships were broken down into three categories: 15 minute, 30 minute and 60 minute. These categories indicate the relationship of the time from ramp to the price adders occurring. The 15 minute measures the relationship between changes in generation over the previous 15 minutes and the change in Real-time adders over the next 15 minutes. The 60 min score measures the relationship between a plant’s ramp over the past hour and Real-time adders. The higher the score, the stronger the correlation between changes in generation and changes in Real-time adders.

Plants with a high one hour score tend to ramp before the adders come in, providing a leading indicator to traders. Plants with a high 15 minute score tend to ramp shortly before adders enter the market. Plants with scores near zero don’t have a strong relationship with Real-time adders, so their changes in generation don’t provide much information. TH Wharton has a relatively high 60 minute score, but a low 15 minute score because it ramps to full capacity well before the adders come in.

According to Dr. Holladay’s research, here are four ERCOT Plants that give the best signal on future adders:

 
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Table 1: ERCOT plants that give the best signal on future adders. The 15 min score reports the correlation between changes in plant generation in the last 15 minutes and changes in adders in the next 15 minutes. The 30 minute score is the correlation between changes in generation over the last 30 minutes and changes in adders in the next 15 minutes. Plants like VH Braunig and Strkyer Creek with high 60 minute scores are ramping well before adders come in.


HISTORICAL EXAMPLES:

Using our Time Series Analysis module, we were able to capture some recent examples of these relationships. Here’s a look:

Chart 1: Two recent examples of the correlation between Stryker Creek and Price Adders highlighting Stryker Creek’s strong correlation across all time categories

Chart 1: Two recent examples of the correlation between Stryker Creek and Price Adders highlighting Stryker Creek’s strong correlation across all time categories

Chart 2: A recent week in May that shows the strong correlation between V H Braunig and the Real-Time Adders.

Chart 2: A recent week in May that shows the strong correlation between V H Braunig and the Real-Time Adders.

Chart 3: T H Wharton’s correlation shows up the strongest after a longer time after ramp up as these recent examples show.

Chart 3: T H Wharton’s correlation shows up the strongest after a longer time after ramp up as these recent examples show.

5 Valuable Alerts for Power Traders this Summer

Power Traders are skilled at consuming large amounts of fast-paced data followed by making fast decisions. A critical tool for catching the “right” market signals are smart alerts.  Alerts that let traders know the moment certain conditions have been met and a trading opportunity is possible.

Alerting on a single condition can be useful and might be a tool that many traders use. But being able to set up alerts that are based upon multiple conditions means that traders can better filter out “false alarms” or just basic noise. Afterall, trading strategies are rarely dependent on one single criteria but a multitude of possible market drivers.


Here are 5 alerts we’ve set up using the Alerting function in QuickSignals but you could use the same parameters to set up alerts in whichever software solution you’re using to be alerted. These alerts help Power Traders filter out the noise and be the first to know when a market signal has appeared.

  1. ERCOT is at Risk of Energy Volatility

  2. Congestion is Directly Affecting PJM West Hub Prices

  3. Forecast Errors Reach a Set Limit

  4. Load & Wind Relationship Criteria

  5. Generation Ramp Indicates Changes in PJM West Hub RT LMP

Read on to learn how to implement these valuable alerts!


Alert #1: ERCOT is at Risk of Energy Volatility

This alert will let you know when there is risk of energy volatility in ERCOT and an increased potential scarcity pricing.

When the Capacity with Energy Offer Curve Available to Increase SCED Base Points (reported in MWs) crosses below 3000 and the total Regulation up Service* that has not been deployed (reported in MWs) crosses below 100 there is an increased risk of volatility. When these conditions occur, Traders will be alerted and can then dig in to determine if making changes in their positions is necessary.

Alert Type: Multi-Conditional

  • Condition #1: ERCOT Cap w/offer IncSCED <3000

AND

  • Condition #2: ERCOT Undeployed Reg-up <100

*The Regulation Up is an Ancillary Service that provides capacity that can respond to signals from ERCOT within five seconds to respond to changes in system frequency. Such capacity is the amount available above any Base Point but below the HSL of a Generation Resource and may be called on to change output as necessary throughout the range of Capacity available to maintain proper system frequency. A Load Resource providing Reg-up must be able to increase and decrease Load as deployed within its Ancillary Service Schedule for Reg-up above the Load Resource’s LPC limit.

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Alert #2: Congestion is Directly Affecting PJM West Hub Prices

PJM Traders will want to set this alert up to stay on top of changes in West Hub LMP that are related to congestion. Using the difference between the Real-Time LMP for Western Hub and the value of the Western Hub Tick Predictor, traders can stay on top of when there is a large discrepancy between the current and predicted next tick.  When seconds matter to your decision making, this alert can ensure you look up at your Dashboard to make fast trades.

Alert Type: Spread Value

  • Spread Value #1: PJM Western Hub LMP-RT

  • Spread Value #2: PJM Western Hub Tick Predictor *

  • Condition: Spread Value percent change increases or decreases by 5%.

    *A Yes Energy calculation using 15 second dispatch rates to calculate the next 5 minute price.

Alert #3: Forecast Errors Reach a Set Limit

Wind / Load Forecast errors for ERCOT, SPPISO & MISO can be catastrophic for portfolios. This alert provides insight into how accurate (or inaccurate) forecasts are shaping up in real time. This example uses SPPISO Wind Forecast but this same alert could be applied for any other type of forecast or ISO.

Alert Type: Single Value

Formula:

(100)(A-B)/B with the following variables:

A = SPPISO Real-Time Load

B = SPPISO Forecast Load

Once this Formula Series is created, you can then set up an Alert for when this error meets the set criteria. The level of error that is worthy of an alert will depend upon the selected data series (Wind, Load, Weather etc) and the ISO. Here’s an example for Wind Error:

  • Single Value: Wind Error Alert (created using the Formula Function above)

  • Condition: Threshold < 0 (indicates wind is coming in below forecast)

*Pro Tip: There are many variations of this that could be useful, including, for example, Load Forecast Error between zones in ERCOT to help predict congestion potential (i.e. North -> Houston)

Alert #4: Load & Wind Relationship Criteria

This Alert is especially useful for SPP, MISO & ERCOT where wind can make or break a position. For this alert you will establish thresholds for both wind and load to let you know when the wind is low and load is high.

Alert Type: Multi-Conditional (ERCOT example)

  • Condition #1 - Load - Real-Time Actual > 65,000 MW

AND

  • Condition #2 - Wind Real-Time Generation < 2,000 MW

Alert #5: Generation Ramp Indicates Changes in PJM West Hub RT LMP

Generators ramping up or down can indicate a potential change in pricing. For this example we have identified a generator that, when it ramps, often indicates changes in PJM Western HUB Real-Time LMP. Setting the alert using Live Power Real-Time 1 minute generation data ensures that you know the minute a generator begins to ramp giving you a jump on your decision making.

Alert Type: Multi-Conditional

  • Condition #1 -Western HUB Real-Time LMP > 75$/MWh

AND

  • Condition #2 - Bath Co Real-Time Generation > 0 MW

Greenhat Fallout: Is Your Company Ready?

  • Your FTR Risk:

    • Do you understand it?

    • Can you document and replicate your reporting?

    • Do you understand your changing credit requirements?


Miss our last blog post on the GreenHat Default? Click here for GreenHat Summary

In 2018, GreenHat Energy LLC defaulted on one of the largest FTR portfolios in PJM’s history, causing a projected loss of $185 to $430 million. PJM hired independent consultants to investigate the GreenHat default. In their report, the consultants were extremely critical of PJM’s ability to manage the financial risk in its FTR markets.

This report recommends several organizational changes focused on improving PJM’s risk oversight. This includes:

  • Establishing the position of Chief Risk Officer over financial markets

  • Creating the Financial Risk Mitigation Senior Task Force (FRMSTF) to evaluate the updates to market rules and participant facing changes

  • Increasing the number of long term auctions for better transparency into contract valuations

  • Adding Mark-to-Auction valuations for intra-auction collateral changes

  • Changing protocols to include more stringent Risk Management requirements for Market Participants

  • Increasing due diligence requirements for all new (and potentially current) Market Participants

Yes Energy can help you increase transparency and improve upon your current FTR risk management processes, while also making sure you stay ahead of any changes PJM might make in the wake of this incident.

Better Understand FTR Metrics around Risk, Credit, and Valuation:

RiskSignals (UI Only) traders can create, edit, and run our pre-built models and then export reports

  • Credit

  • Worst Week

  • VaR

  • Mark-to-Market

Access to these models can be allocated to traders, risk managers and any other reporting role in your organization, increasing transparency for everyone involved.

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Provide a Documented and Replicable Third Party Risk Assessment System

A fully automated reporting solution produced by Yes Energy provides a third-party risk assessment system that includes:

  • Pre-Submission and Post-Clearance Automated Risk Reports

  • Pre-Submission and Post-Clearance Automated Credit Reports

  • Mark-to-Market Reporting for forward positions

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Access to Risk Tools and Automated Reporting Tools for all FTR Transactions:

Get access to both of these tools across your organization - the User Interface and “set it and forget it” automated reporting for pre and post submission reports.

GreenHat's Default Causes Hundreds of Millions in Stakeholder Losses

How will PJM proceed and How will it impact traders?

Regardless of how things play out in the coming year(s), the PJM GreenHat default and the changes it will trigger are certain to be top of mind for FTR traders.  To help traders manage this issue, we've researched and summarized the events leading to the default, the fall out so far and how it will potentially impact traders. Here you’ll find the overall summary and a link to have the detailed summary emailed to you.

Overall Summary

  • On June 21st, 2018, PJM learned an important lesson about its credit policy and management when one of its largest FTR portfolio investors, GreenHat Energy LLC., defaulted on its long-term FTR obligations for the ongoing 2018/2019, 2019/2020, and 2020/2021 PJM planning periods.

  • GreenHat built up a 890 million MWh portfolio posting a mere $600,000 in collateral.

  • GreenHat’s portfolio began depreciating in 2017 and subsequently pledged $62 million in sales revenue to PJM; Revenue was reportedly derived from a bi-lateral sales agreement.

  • Pledged revenue was pocketed, GreenHat increased its position exposing the portfolio to further losses.

  • Bets on historically successful positions allowed GreenHat to have low collateral requirements, but unexpected transmission upgrades helped lead to the massive default.

  • FERC, PJM and Independent Committee of Consultants are researching, analyzing and making recommendations to prevent this type of default in the future.

  • Analysis Summary

    • PJM did not have access to verify the $62 million pledge that allowed GreenHat to continue with is positions

    • PJM lacks a comprehensive clearing mechanism to mitigate rising default, requiring marketing participants and, ultimately, rate payers to do the mitigation

    • PJM has used flawed credit methodology to determine credit risk

  • Independent Committee Consultants’ Recommendations Summary - PJM should:

    • Use mark-to-auction values from more frequent auctions as the base for “variation margin”

    • Retain the 10¢/MWh minimum charge and purchase price that form the “original margin”, terminate the FTR undiversified adder due to its lack of correlation to risk

    • Define a default as the inability to grant a monthly variation margin call within two business days.

    • Enact outsourced background checks, to execute due diligence by assuring applicants employ their represented methods of risk management

    • Apply explicit rejection of membership should a background and regulatory history check fail

    • Annually update the financial qualifications and to enable PJM’s right to proceed on a participant's failure to meet those qualifications.

    • Increase its Long-term auctions to monthly or bi-monthly

    • Report with the IMM market expectations from participant risk managers, to establish position limits for FTRs based on capitalization

    • Produce internal participant risk management reports based on the frequency of participants changing portfolio positions

  • Potential Impacts of Recommended PJM Changes:

    • FTR market participants will likely need to provide collateral associated to their portfolio’s risk before submitting their bids.

    • When the Mark-to-Market value surpasses the FTR account’s available credit for auction bidding, PJM will issue a Collateral Call. The Collateral Proposal has the potential to delay auction clears and results.

    • PJM’s analysis conveys that 75% of PJM FTR participants will experience a negligible increase in credit, 11% will see an increase less than $100,000, and another 11% will see an increase under $1 million, and 4% will experience an increase over $1 million.

    • More stringent credit requirements, price formations, and Collateral Calls will heighten the entry costs associated with the PJM market, especially for smaller firms.

Yes Energy announces the release of TradeNOW!

Boulder, CO

Yes Energy announced the release of TradeNOW into their QuickSignals product.  TradeNOW is an innovative data collection technology used to deliver critical market signals to QuickSignals dashboards and QuickSignals RTD data feeds.

One trader using TradeNOW says, “You're getting Hub North a second and a half faster!? That's a really big deal!”. In many instances, the speed improvements are even greater:

  • 4.0 - 12.0 seconds faster - INDIANA.HUB (RT LMP, ExAnte, ExPost, ExPost/AnteDiff)

  • 1.0 - 3.0 seconds faster - ERCOT HB_NORTH (RT LMP - Adders Included)

  • 0.25 -0.4 seconds faster PEPCO/PENELEC (Provisional Dispatch Rates-15 Sec --Indicative of PJM Western Hub Next Tick)

TradeNOW data collection being used on the right, Legacy collection used on the left.

“Traders participating in the ICE Bal-Day market will benefit the most from this new technology. These fast paced markets require the fastest data to capture trading opportunities. Along with the release of TradeNOW, Yes Energy is increasing its investment to reducing latency across all of our data collections,” said Isaac Velander, VP of Product at Yes Energy. “We believe these investments in the fastest data possible makes QuickSignals the market leading tool for supporting real-time energy traders and asset managers.”


Yes Energy revolutionized power market data visualization with the introduction of its flagship product, PowerSignals, in 2007. Since its founding, Yes Energy has grown to be the industry leader in providing power market participants with tools to support their daily trading operations. Yes Energy collects & manages thousands of real-time & historical power market data series including (but certainly not limited to) ISO/RTO data, LMP prices, FTR auction results, transmission & generation outages, real-time generation & flow data, and load & weather forecasts. The Yes Energy trading suite provides an end-to-end solution for power traders through a combination of five products.

  • PowerSignals - Real-time and historic ISO market data transformed into insight with 1000+ users

  • QuickSignals - Monitors the market in real-time via custom dashboards, mobile, and desktop alerting tools

  • DataSignals -  Data feed of PowerSignals data directly into your workflows, spreadsheets, and other in-house solutions via an API or private database.

  • Submission Services - Submit market trades to the ISO and receive your awards directly all in one tool.

  • RiskSignals - Trader-friendly tools to optimize portfolios via profit analytics and risk models.

Yes Energy's 50 plus employees are committed to helping market participants in North American nodal power markets be more successful and more efficient. This is achieved by understanding their challenges and developing cutting edge information solutions and it is sustained by an undaunted 'can do' spirit embodied by its entire staff.