As we covered earlier this week, the U.S. solar market is moving towards shorter and shorter power contracts, while so far merchant solar projects remain more power points than power plants.
However, energy storage may be leapfrogging solar in a move towards a merchant model. At least that is the direction that developer and asset owner GlidePath is taking, as this week it started construction on a 10 MW / 10 megawatt-hour battery south of Houston, in the area governed by the Electric Reliability Council of Texas (ERCOT).
In other regions a battery of this size would not be particularly groundbreaking, but Texas has very little energy storage installed. This is in large part because ERCOT defines batteries as generation, and its rules bar single entities from owning generation and transmission.
This battery also holds no power contract. GlidePath will arbitrage electricity, selling both electricity and ancillary services into the spot market – essentially making this a merchant battery plant.
Making the numbers work
GlidePath has not revealed details of this sale, such as what services it will provide or what portion of revenue it expects to come from electricity versus capacity. However, Dr. Joshua Rhodes of Vibrant Clean Energy told pv magazine that the ancillary services are a necessary component.
“It would be impossible to do it on arbitrage alone,” explained Dr. Rhodes. “It would need to play both markets.”
One thing that the battery will not be selling is capacity, as there is no capacity market in ERCOT. Chris McKissack, the chief operating officer at GlidePath, acknowledges that competition in the ERCOT market is “tough”, and says that this required his company to keep down costs.
“Because GlidePath’s team has experience in managing all phases of storage development – from market strategy through procurement, construction and operations, we were able to eliminate unnecessary costs and deliver a competitive project,” notes McKissack.
But he also notes that there are certain circumstances in the ERCOT market that make the numbers work:
ERCOT is predicting both record demand and historically low reserve margins – at the same time, variability from renewable generation is increasing. This makes the market a great fit for storage, which can increase reliability and clamp down on price spikes.
And while this is one of the largest projects installed to date in Texas, it is not the only time GlidePath has been an early leader in a market. McKissack says that GlidePath was the first developer to successfully commission standalone energy storage projects in the PJM Interconnection grid, and the company currently has 80 MW of batteries online in PJM.
Nor is this expected to be the company’s last play in Texas.
“We think Prospect Storage will set a great example for how standalone storage can work in ERCOT,” states McKissack. “We expect to see a lot more opportunity once this project proves our thesis.”
But it may be harder for future merchant batteries, as the relatively small ancillary services market in ERCOT could fill up quickly.
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What are these?
“One thing that the battery will not be selling is capacity, as there is no capacity market in ERCOT. ”
ancillary services? spot market? capacity market?
Ancillary services are services like frequency regulation, voltage regulation, etc. that are not raw energy/kilowatt-hours, but are needed for the grid to operate reliably. Spot market refers to sale on wholesale markets under a price that varies over time driven by market signals, such as the wholesale electricity markets that are managed by the main grid operators in the United States (ERCOT, CAISO, PJM Interconnection, MISO, ISO-New England, New York ISO, SPP).
Capacity markets are a creation of grid operators where power plants receive payments for supplying capacity – in other words, for being online to supply power – regardless of the actual kilowatt-hours supplied.
I hope that helps. It would take up a lot of space to explain these things in articles, so we are considering doing an entire article on electricity terminology.
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