2020 State of the Market Report-FINAL 05-28

1 Contents 2020 State of the Market Report // 2020 State OF THE Market REPORT FOR THE ERCOT ELECTRICITY MARKETS Independent Market Monitor for ERCOT May 2021 F/ Contents 2020 State of the Market Report //TABLE OF CONTENTS Executive Summary .. i I. Review of Real-Time Market Outcomes .. 1 A. Real-Time Market Prices .. 1 B. Zonal Average Energy Prices in 2020 .. 6 C. Evaluation of the Revenue Neutrality Allocation Uplift .. 8 D. Real-Time Prices Adjusted for Fuel Price Changes .. 10 E. Aggregated Offer 12 F. ORDC Impacts and Prices During Shortage Conditions .. 14 G. Real-Time Price Volatility.

2 19 II. Demand and Supply in ERCOT .. 21 A. ERCOT Load in 2020 .. 21 B. Generation Capacity in ERCOT .. 22 C. Imports to 24 D. Wind and Solar Output in ERCOT .. 25 E. Demand Response Capability .. 28 III. Day-Ahead Market Performance .. 33 A. Day-Ahead Market Prices .. 34 B. Day-Ahead Market Volumes .. 35 C. Point-to-Point Obligations .. 39 D. Ancillary Services Market .. 41 IV. Transmission Congestion and Congestion Revenue Rights .. 47 A. Day-Ahead and Real-Time Congestion .. 47 B. Real-Time Congestion .. 49 C. CRR Market Outcomes and Revenue Sufficiency .. 57 V. Reliability Commitments .. 65 A. RUC Outcomes .. 66 B.

3 QSE Operation Planning .. 67 VI. Resource Adequacy .. 71 A. Net Revenue Analysis .. 71 B. Net Revenues of Existing 74 C. Planning Reserve Margin .. 78 D. Effectiveness of the Shortage Pricing Mechanism .. 80 E. Reliability Must Run and Must Run Alternatives .. 84 VII. Analysis of Competitive Performance .. 87 A. Structural Market Power Indicators .. 87 B. Evaluation of Supplier Conduct .. 88 C. Voluntary Mitigation Plans .. 94 D. Market Power 95 Appendix .. A-1 Contents 2020 State of the Market Report // LIST OF FIGURES Figure 1: Average All-in Price for Electricity in ERCOT .. 2 Figure 2: All in Prices 2020.

4 3 Figure 3: Comparison of All-in Prices Across Markets .. 4 Figure 4: Prices by Time of Day .. 5 Figure 5: Average Real-Time Energy Price Spikes .. 6 Figure 6: Zonal Price Duration Curves .. 8 Figure 7: ERCOT RENA Analysis .. 9 Figure 8: Monthly Average Implied Heat Rates .. 11 Figure 9: Implied Heat Rate and Load Relationship .. 12 Figure 10: Aggregated Generation Offer Stack - Annual and Peak .. 13 Figure 11: Blended Operating Reserve Demand Curves .. 15 Figure 12: Average Operating Reserve Adder .. 16 Figure 13: Average Reliability Adder .. 17 Figure 14: Duration of High Prices .. 18 Figure 15: Annual Load Statistics by Zone.

5 21 Figure 16: Annual Generation Mix in 23 Figure 17: Annual Energy Transacted Across DC Ties .. 24 Figure 18: Wind Production and Curtailment .. 25 Figure 19: Top and Bottom Deciles (Hours) of Net Load .. 26 Figure 20: Solar Production and Curtailment .. 27 Figure 21: Daily Average of Responsive Reserves Provided by Load Resources .. 29 Figure 22: Convergence Between Day-Ahead and Real-Time Energy Prices .. 34 Figure 23: Volume of Day-Ahead Market Activity by Month .. 36 Figure 24: Day-Ahead Market Three-Part Offer Capacity .. 38 Figure 25: Daily Collateral Held by ERCOT .. 39 Figure 26: Point-to-Point Obligation Charges and Revenues.

6 40 Figure 27: Average Profitability of Point-to-Point Obligations .. 41 Figure 28: 2020 Ancillary Service Prices .. 43 Figure 29: QSE-Portfolio Net Ancillary Service Shortages .. 46 Figure 30: Day-Ahead Congestion Costs by Zone .. 48 Figure 31: Real-Time Congestion Costs by 48 Figure 32: Frequency of Binding and Active Constraints .. 50 Figure 33: GTC Binding Constraint Hours .. 52 Figure 34: Most Costly Real-Time Congested Areas .. 53 Figure 35: Percentage Overload of Violated Constraints .. 56 Figure 36: CRR Revenues by Zone .. 58 Figure 37: 2020 CRR Auction Revenue .. 59 Figure 38: CRR Auction Revenue, Payments and Congestion Rent.

7 60 Contents 2020 State of the Market Report //Figure 39: CRR History .. 61 Figure 40: CRR Balancing 63 Figure 41: Real-Time Congestion Rent and Payments .. 64 Figure 42: Capacity Commitment Timing July and August Hour Ending 12 through 20 .. 68 Figure 43: Combustion Turbine Net Revenues .. 72 Figure 44: Combined Cycle Net Revenues .. 73 Figure 45: Net Revenues by Generation Resource Type .. 77 Figure 46: Projected Planning Reserve Margins .. 79 Figure 47: Peaker Net 82 Figure 48: Summer Month Outage Percentages .. 84 Figure 49: Pivotal Supplier Frequency by Load Level .. 87 Figure 50: Reductions in Installed Capacity.

8 89 Figure 51: Derating, Planned Outages and Forced Outages .. 90 Figure 52: Outages and Deratings by Load Level and Participant Size, June-August .. 92 Figure 53: Incremental Output Gap by Load Level and Participant Size Step 2 .. 93 Figure 54: Mitigated Capacity by Load Level .. 96 LIST OF TABLES Table 1: Average Annual Real-Time Energy Market Prices by Zone .. 7 Table 2: Zonal Price Variation as a Percentage of Annual Average Prices .. 19 Table 3: Average Annual Ancillary Service Prices by Service .. 33 Table 4: Share of Reserves Provided by the Top QSEs in 2019-2020 .. 44 Table 5: Generic Transmission Constraints.

9 51 Table 6: RUC Settlement .. 66 Table 7: Settlement Point Price by Fuel Type .. 75 Table 8: Effect of ORDC Shift on Price .. 83 Guide to Acronyms 2020 State of the Market Report //4CP 4-Coincident Peak NOIE Non Opt-In Entity CAISO California Independent System Operator NPRR Nodal Protocol Revision Request CDR Capacity, Demand, and Reserves Report NSO Notification of Suspension of Operations CFE Comisi n Federal de Electricidad NYISO New York Independent System Operator CONE Cost of New Entry OBD Other Binding Document CRR Congestion Revenue Rights ORDC Operating Reserve Demand Curve DAM Day-Ahead Market PCRR Pre-Assigned Congestion Revenue Rights DC Tie Direct-Current Tie PTP Point-to-Point EEA Energy Emergency Alert PTPLO Point-to-Point Obligation with links to an Option ERCOT Electric Reliability Council of Texas PUC Public Utility Commission ERS Emergency Response Service PURA Public Utility Regulatory Act FIP Fuel Index

10 Price QSE Qualified Scheduling Entity GTC Generic Transmission Constraint RDI Residual Demand Index GW Gigawatt RENA Real-Time Revenue Neutrality Allocation HCAP High System-Wide Offer Cap RTCA Real-Time Contingency Analysis HE Hour-ending RDPA Real-Time Reliability Deployment Price Adder Hz Hertz RUC Reliability Unit Commitment ISO-NE ISO New England SASM Supplemental Ancillary Service Market LDF Load Distribution Factor SCED Security-Constrained Economic Dispatch LDL Low Dispatch Limit SCR System Change Request LMP Locational Marginal Price SPP Southwest Power Pool LOLP Loss of Load Probability SWOC System-Wide Offer Cap LSL Low Sustained Limit VMP Voluntary Mitigation Plans MISO Midcontinent Independent System Operator VOLL Value of Lost Load MMBtu One million British Thermal Units MW Megawatt