What is Nodal? What does it mean to go from a zonal to nodal market?
The transition from a zonal to a nodal market on Dec. 1 changes how ERCOT manages power delivery constraints and calculates real-time prices, with the goal of making the power grid more efficient and reliable. This change should lead to reduced costs.
The Nodal market increases the number of places where prices are paid to generators for energy from four Congestion Management Zones to more than 8,000 nodes.
Current Zonal Market: The price a customer pays and the price a generator gets paid is determined by the clearing price of the last megawatt generated to meet load at a zonal level. This means all customers within one zone pay and all generators within that same zone get paid that same price, regardless of if they contributed to that zone’s congestion or not. Intra-zonal congestion is an additional cost paid equally by all customers within that zone.
Nodal Market: A main difference between the zonal and nodal markets is how congestion within a zone will be handled. All end-use customers’ costs are based on the load zone prices – the weighted average of all nodes within that zone. Generation will be priced at its own node and that price will reflect the impact that particular generator is having on congestion.
What is a node?
Any point at which electricity is added to or removed from the grid.
Who does this impact?
The short-term impact is for commercial customers with 50kW peak demand or more. Over time, all consumers should see lower relative prices due to the better efficiencies in the market structure. Fuel prices will still have the largest impact on electricity prices, but the overall cost to customers at any equal fuel cost should be lower in a nodal market than in a zonal market.
What is the benefit of this market change to the market?
A nodal system should result in the most efficient dispatch of generation resources leading to the lowest possible costs. According to the PUCT, this change is designed to lower costs to consumers by $5.6 billion over the first 10 years by reducing local transmission congestion costs, improving price signals for locating generation and transmission and creating a Day-Ahead Market for the purchase and sale of wholesale electricity.
Why/How does the PUCT estimate this will lower costs to consumers by $5.6 billion over the first 10 years?
The transition from a zonal to a nodal market changes how ERCOT determines wholesale electricity prices by changing the way power is scheduled, purchased and settled. In addition, a nodal market will give pricing signals for where best to locate new generation in order to reduce congestion by paying the highest price for energy at these locations. These changes will make the power grid more efficient and reliable and should lead to reduced costs over time.
How could this impact my bill? / What are the new charges related to the market change?
With the new nodal design ERCOT is changing the way they charge REPs for the generation required to maintain grid reliability. ERCOT is replacing, Out-of-Merit Capacity (OOMC) and Replacement Reserve Service (RPRS), two fees that were required for grid reliability and charged to Retail Electric Providers (REP) with a RUC charge. RUC (Reliability Unit Commitment) is spare generation capacity purchased by ERCOT, which they use to ensure that there is adequate resource capacity and ancillary service capacity to serve ERCOT forecasted load. It will be one of many tools ERCOT uses to ensure the electric grid operates correctly and efficiently in the nodal market.
How does the calculation of wholesale market prices differ?
In the zonal market, the electricity price for a Congestion Zone was determined by the price of the last megawatt purchased in a particular time interval. There was an additional charge for congestion, which is the cost ERCOT had to pay generators who could relieve congestion, added to the electricity price. In the nodal market, the electricity price in each time interval for a Load Zone is the weighted average of the prices for each node in that Load Zone, thereby representing the cost with congestion already calculated in. Prices at the zonal level were calculated every 15 minutes. They will now be calculated every five minutes, which will lead to more efficient real-time data.
Additionally, with the switch to nodal comes a new ERCOT run Day-Ahead auction market (DAM) which allows wholesale energy to be purchased for the next day by each hour individually based on forecasted load.
What does this mean for the market today and tomorrow?
Nobody knows the exact financial impact. What we do know is that in the short-term, reliability should be improved. Over the long-term congestion costs should be lowered as new generation is built closer to where it’s needed. This should bring savings over time.
Why is picking the right REP more important in a nodal market?
With any new market change, there is some unknown about true impact. We’ve designed our products for the minimal added costs while maximizing the benefits of the new nodal market design.
In any decision that affects your business, it’s important to know and trust who you are dealing with. First Choice Power has extensive market experience with strong the strong financial backing required to participate in the new nodal market effectively. We’ve been a sought out information source for industry participants and professionals on the implications of the transition to Nodal.
What should I be asking my REP?
Do they have the industry and technical expertise to accurately forecast and purchase their energy purchases to meet the power needs of their customers? Are they a QSE? Do they have the financial backing to participate in the new Day Ahead Market?
Why is it beneficial to be a QSE operating in a nodal market?
As a QSE with direct communication with ERCOT, the REP will have direct detailed billing data for ERCOT charges. This allows REPs like First Choice Power to pass through all costs and credits so that customers can receive all potential benefits from the nodal market and not be subject to the extreme risk premiums currently associated with “fixing” these new costs.
How is day ahead market (DAM) different from real-time market (Real-time market)?
Real-time markets are price signals determined at the time of electricity flowing on the grid as ERCOT buys and sells energy to maintain the balance between actual real-time supply and demand. DAM is a set of price signals determined the day prior to electricity flowing on the grid in an auction run by ERCOT for market participants. The more closely the REPs day-ahead electricity purchases match their real-time needs the better ERCOT is able to manage the grid in real time and leads to more efficient allocation of resources.
Who will participate in DAM?
The short answer is all market participants with sufficient credit. The requirements of the nodal market are significantly higher than those in zonal.
Only QSEs can communicate with ERCOT and are therefore capable of submitting Day-Ahead bids and offers to ERCOT. Market participants who are not QSEs can participate through their QSE, but this does involve an additional layer and the information they receive from ERCOT will be filtered through their QSE and may only be at a summary level. First Choice Power is a QSE, allowing it to pass through all potential benefits of the new nodal market.