As 2024 comes to a close, E3 is pleased to release a market update on the Texas power grid: what changes occurred this year, what drove those changes, and our perspectives on the impact of the market changes. E3 closely tracks ERCOT’s market evolution for a variety of projects, including our flagship Market Price Forecasts. These fundamentals-based electricity price forecasts, available for every North American market, examine how policies, technologies, demand, and other drivers impact energy pricing, including day-ahead, real-time, and ancillary services.
In addition to gaining a broad view of the market, this ERCOT snapshot examines the extent to which E3’s fundamentals forecasting approach was able to anticipate changes in the market in 2024.
2024 vs. 2023: Large Market Shifts
ERCOT saw a dramatic shift in 2024. For example, ERCOT North day-ahead prices dropped by nearly 50% from $55.50/MWh to $27.33/MWh. E3’s fundamentals approach to market price forecasting was able to anticipate the drop in prices and volatility in 2024. We forecast that 2024 would settle at $23.23/MWh in ERCOT North, compared to YTD actuals of $27.33/MWh.1 The small monthly average forecast error in the shoulder seasons in Figure 1 indicate that our underlying forecast fundamentals were very strong. Most of our error is attributed to the very cold January in 2024 and the outlier events in May, counteracted by our stronger August forecast than actuals.
E3 is also focused on providing credible battery revenue forecasts in ERCOT. Because our fundamentals modeling efforts were able to anticipate the shift in market volatility, we were able to capture the large shift in battery storage economics in 2024. In 2023, our RESTORE energy storage optimization model indicates that a two-hour BESS in ERCOT North could have earned up to ~$475/kW-Year across all AS products and energy. This is in stark contrast to 2024 actuals, where the year may settle at ~$120/kW-year. When using our 2024 out-of-sample forecast, RESTORE predicted storage revenues of ~$100/kW-Year in ERCOT. The missing $20/kW-year stems from the more volatile January and May of 2024 outlier events.
E3’s observation is that the 2024 shift in the ERCOT was brought on in large part by an increase in almost 10 GW of new solar and storage, while peak loads remained flat year over year.
E3 Approach to Forecasting
E3 uses a fundamentals approach to market price forecasting. E3 does not rely exclusively on statistics from historical data to forecast future prices, but instead uses a “bottom-up” approach based on costs and operations of the grid, which enables us to reflect the dynamic structural changes that are transforming many power markets across North America. To achieve this, we project a long-term resource build that is derived from an initial multi-year capacity expansion that incorporates expected loads, resource costs, fuel costs, policy, and transmission assumptions.
Once the resource build is determined, we utilize production cost modeling to generate hourly dispatch for the market. We augment the production cost model with market scarcity to derive the final forecast by analyzing historical relationships between scarcity pricing and available generation vs. load and then projecting these scarcity premiums on top of the model’s ‘raw’ marginal cost–based prices.
Download E3’s full ERCOT snapshot here, including load and capacity additions, day-ahead and ancillary price comparisons, storage revenue predictions, and fundamental drivers.
For further information, please contact nathan.miller@ethree.com, grant.freudenthaler@ethree.com, and kush.patel@ethree.com.
Find E3’s Market Price Forecasts here.
- Our 2024 comparison contains forecast loads, renewable profiles, gas prices, and build. This comparison is therefore an out-of-sample comparison. 2024 data is to December 15th 2024. ↩︎
