Blog May 11, 2018


During early May 2018, the ERCOT power market experienced an unprecedented level of real-time congestion. In an already volatile market, this can create a number of unanswered questions. A few of these questions include, “were there any new real-time congestion events?” and “were there any false DAM constraints that actually did not post in real time?”

ERCOT Experienced High Levels of Real-Time Congestion from May 1-7. Click to enlarge

At Genscape we don’t just give you the tools to succeed, we give you the tools to retire early. Nodal Market Insights (NMI), Genscape’s flagship congestion forecasting software, is already known for delivering consistent profits week after week. When the markets are quiet NMI can help you optimize your bidding strategy and still deliver returns. But last week was not quiet, and NMI was not merely consistent. During a period when the markets were melting and congestion was historically prolific, NMI performed exceptionally. From May 1-7 Genscape’s default ERCOT bid pair portfolio cleared over $230,000 in returns at $17.22/MW. That includes accurately calling for over 30 new constraints to bind in the real-time market, at almost $100,000 in total shadow price. When the volatility is unprecedented you need a tool that looks beyond market history, a tool like NMI with predictive power layered over a sound analytical framework. In this blog post, we will share what our analysts have uncovered over recent weeks and provide insight into our expectations for the season ahead.

Real-Time Congestion Analysis

The automated process runs each morning, free of human intervention, well in advance of Day Ahead market closure, then compiles the performance metrics. The results include all the point-to-point bids for constraints studied regardless if they are "suggest" trades or not. This provides transparency into the engine and its high-level forecasts.

Real-Time Constraints in ERCOT Visualized by Genscape's Nodal Market Insights Platform from May 1-7. Click to enlarge

Nodal Market Insight Congestion Forecasting Platform

The Nodal Market Insights Platform also allows users to create congestion forecasts in support of Day Ahead and monthly trading activity in the power markets. The power flow modeling is designed specifically for those trying to predict constraints. Based on those predictions, users can either hedge exposure or identify new trading opportunities. To assess the risk and reward strategies for trading positions, NMI produces technical and financial metrics. The platform provides intra-day modeling in both the ERCOT DAM/CRR and PJM UTC/FTR markets. 

Genscape's NMI Platform Provides the Most Efficient Bid Pair Options with Both Power Flow and Financial Risk Metrics. Click to enlarge

The NMI platform also provides the best in market data mining and visualization tools to allow for our clients to understand conditions that drove the congestion events as well as the most profitable bid pairs to capitalize on them.

Genscape's NMI Platform Provides a Historical Profitability Analysis and Determines the Risk-Reward Impacts of Each Bid. Click to enlarge

If you are interested in receiving details that go into the platform numbers and high-level metrics for each date, please click here to download the complimentary report. The profit, loss and dollars per megawatt return values shown in the report use a generic bidding strategy and can be drastically different for each market participant based on internal risk thresholds. 

Report Metrics:

  • May 1 to 7, 2018 using Genscape's default ERCOT bid pair portfolio where strength is between 1 and 5, and valued correctly in the DAM market with the bids clearing:
    • ~$236k in P&L
    • $17.22/MW return
    • ~145k in accurate RT shadow prices congestion predictions
    • ~110k in accurate DAM shadow prices for non-congestion events
    • Accurately forecasted ~56% RT congestion events
    • Accurately forecasted ~41% RT congestion shadow prices

Report Column Description:

  • OD: the day the model was targeting and simulating the RT for
  • Strength: Value ranging from 1 to 10 based on Genscape's strength matrix
  • Cleared: indicator for each of the bids in the output that the bid/trade cleared in the DAM for the OD, this is based on user input on how to calculate the bid price
  • Clear Trade Return: total P&L of the trades for that date, strength and clear flag
  • MW: Total MW's that are placed to create the clear trade returns for that date, strength and clear flag
  • Hourly Positive RT Constraint Count: count of the hours and constraints that the NMI correctly predicted congestion in the RT
  • Hourly Positive RT Constraint Shadow Price: total shadow price of the positive constraint calls for each hour from the NMI tool
  • Hourly False Positive RT Constraint Count: count of the hours and constraint calls that NMI miss forecasted in the RT
  • Hourly Positive DAM Sell Constraint Count: count of the hours and constraints that the NMI correctly predicted non-congestion in the RT that posted in the same day DAM or most recent DAM day
  • Hourly Positive DAM Sell Constraint Shadow Price: total shadow price of the constraints that the NMI correctly predicted non-congestion in the RT that posted in the same day DAM or most recent DAM day
  • Hourly False Positive RT Constraint Sell Count: count of the hours and constraint calls that NMI miss forecasted in the RT that actually congested
  • Hourly False Positive RT Constraint Shadow Price: total shadow price of the constraint calls that NMI miss forecasted in the RT that actually congested 

ERCOT Summer Outlook

As ERCOT transitions from spring to summer, the early May 2018 period is an indicator of the level of congestion that we most likely will observe in ERCOT over the next six months. This summer the market will enter a period when ERCOT's capacity reserve is at an all-time low, according to an ERCOT news release

Whispers are shifting to serious worry for Summer 2018 in ERCOT. In the wake of 3 GW of coal retirements, long-range weather forecasts eerily reminiscent of summer 2011, expected record-level peak load, and a system price cap revision up to $9,000, it is no surprise that July and August could be all-time blockbuster months for the ERCOT footprint.

Can we puncture the stack? A 72-73 GW peak load forecast and ERCOT expectations of ~78 GW of generation available at the peak leave us with some wiggle room, right? How important are wind levels to this buffer? At what level are we expecting thermal unit outages?

ERCOT Supply Versus Demand Outlook on May 7, 2018. SOURCE: ERCOT. Click to enlarge

How impactful is an hour of $9,000 pricing on the July or August RT OPA? One hour of maximum pricing strength is enough to move the settle for the entire two-month real-time strip by more than $12.00. 

Genscape Data Shows the Number of Hours of $9,000 pricing. Click to enlarge

Are these scenarios remotely realistic? In August 2011, the price cap was reached for seven full hours and prices were within $500 of this cap at an additional six times at the hourly level. The price cap was $3,000 in 2011, but real-time prices were indeed sustained at the ceiling throughout the month. 

Would you like to know more? Tune into Genscape's ERCOT Summer Outlook on Tuesday, May 22 at 1pm ET to find out if summer 2018 truly merits its hype.

PowerIQ provides coverage of the ERCOT power market and forecasts the real-time, next-day, balance-of-month, and next-month markets using Genscape’s proprietary data. PowerIQ and NMI aim to help power market participants make more informed buy/sell decisions, create hedging strategies, and enhance profitability. To learn more about the NMI platform, please click here