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New US renewable capture prices reveal revenue challenges, opportunities


Price erosion already apparent for CAISO solar

Trends indicate benefits of transmission, storage

  • Author
  • Kate Winston    Daryna Kotenko
  • Editor
  • Kshitiz Goliya
  • Commodity
  • Electric Power Energy Transition Natural Gas

As the US shifts toward cleaner electricity, the regions of the country with the most wind and solar foreshadow the potential for renewables to erode their own revenue, as well as the opportunity for transmission and storage to help offset this trend, experts following the issue said.

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Renewable price cannibalization is already showing up in places like California, where solar power floods the market during the central hours of the typical summer day and power prices dip close to or below zero, said Giuliano Bordignon, lead analyst for North American power at S&P Global Commodity Insights.

In 2021, day-ahead wholesale power prices averaged $50/MWh in CAISO SP15, but solar capture prices averaged just $36/MWh there last year, Bordignon said. In other words, solar capture prices were well below market prices, he said.

Renewable capture prices are new indices published by S&P Global Commodity Insights. The indices track the weighted average prices renewable generators receive for the electricity they produce throughout the day, based on hourly generation and pricing data from grid operators.

Meanwhile, wind capture prices at the CAISO SP15 were above market prices, averaging $52/MWh in 2021, Bordingon said. This is because not all wind generates at the same time, and there is more wind output at the beginning and end of the day when prices are higher, he said.

In contrast, wind capture prices in the Southwest Power Pool North Hub trend lower than day-ahead wholesale prices. And wind capture prices in Texas vary widely by region.

Capture price trends

Renewable capture price data could inform where developers build new renewable facilities. For instance, wind could be the focus in California, but solar could be the priority in other regions of the US where there is still an opportunity for solar to earn a premium compared to wholesale prices.

"The trends that we obtain from capture prices indicate a small advantage of solar over wind in the next few years," Bordignon said. "This applies in particular across the Eastern US where fossil fuel technologies are still dominant across the various power markets," he said.

Renewable capture prices are expected to see a relatively steep decline through 2025 according to the S&P Global Commodity Insights Long-Term Outlook. "But afterwards, and at least through the mid-2030s, the rate of decline decelerates or flattens, and in most regions remain in positive territory through 2050," Bordignon said.

Renewable capture prices will also likely see short-term swings due to variations in fuel prices, said Joshua Rhodes, a research associate with the Energy Institute at the University of Texas at Austin. During the hours renewables are producing the marginal generator is often gas-fired, so market prices for renewables will be higher when the price of natural gas is higher, he explained.

And while capture prices will generally trend down over time, prices could make abrupt jumps up when expanded transmission gives renewables better access to markets, Rhodes said.

Transmission, storage

Looking at transmission, anyone working on integrated resource plans could use capture price data to build a case for grid investments, said Eric Smith, the associate director of the Tulane Energy Institute. "The ability to move such power across the country could be quite profitable, assuming the volume to be moved can justify the incremental investment," he said.

The data could be used to determine best investments to limit curtailment, as well as the potential impact of adding storage to the mix to reduce revenue volatility and increase the gross revenue earned, Smith said.

The capture price impact of storage like batteries or, after 2030, hydrogen, will be determined by the costs of different technologies, Bordignon said.

Analysts at grid operators could also use the data as they design innovative market products that accommodate generation volatility and compensate storage assets, Smith said.

And capture prices could be used to inform power purchase agreement prices. While developers know the details of power plant costs, the counterparty may not have that information and therefore could use capture prices to determine the best deal, said Jeff Schroeter, managing director at Genova Power Advisors.

Other data points

But capture prices are just one part of the picture. For instance, developers looking to site a new project will also weigh whether they will have to pay for expensive upgrades to the transmission system in a region, Rhodes said.

It would also be helpful if the capture price data was paired with capacity factors, Rhodes said. Higher capture prices in a particular location could be offset by lower capacity factors, he noted.

In addition to the daily capture price data, it could also be useful to have weekly, monthly or seasonal capture price data, Smith said.