ERCOT is on the verge of rolling out its most significant regulatory overhaul since the inception of the nodal market over a decade ago with the Dec. 5 launch of its real-time co-optimization and BESS (RTC+B) regulations. Capping a process of more than six years, the market reforms promise to reshape the energy and ancillary markets, with vast implications for renewable energy contracts and BESS.

The changes are centered on optimizing the dispatch of the lowest-cost generators and advancing the integration of BESS into the market, with projected savings of billions of dollars for consumers. A 2024 ERCOT study puts the annual cost reductions at between $2.5 billion and $6.4 billion, representing 17-21% of system costs.

Potomac Economics, the independent market monitor, has lauded the rule changes.

“Real-time co-optimization, set to be implemented in December 2025, will improve many of the issues we raised regarding market performance and operational risks,” the market watchdog said in a market report. “RTC allows the real-time market to simultaneously schedule energy and operating reserves.”

Under RTC+B, ERCOT schedules energy and ancillary services simultaneously in the real-time market every five minutes. This dynamic process maximizes the output from the cheapest power sources by reallocating ancillary services to those generators that are more expensive, ensuring the most efficient units are used for energy. The system saves additional cost by allowing the market to go short on less-critical ancillary services to free up more generating capacity when supplies are tight and load is high.

This represents a vast change from the existing system, where ancillary services are scheduled in the day-ahead market based on forecasts rather than real-time conditions. That process has led to higher prices because it doesn't account for actual resource availability and system load. The new system also replaces the Operating Reserve Demand Curve (ORDC), a post-settlement price adder that in past years gave rise to extreme pricing.

For PPAs, the drastic efficiencies brought by RTC+B are expected to tamp down energy and scarcity prices. This development, which is bearish for power forwards, places a limit on price gains that would otherwise come from the market’s record load growth and the phase-out of federal subsidies from the Trump administration. Despite this, the fair market value for an ERCOT-wide composite 10-year solar PPA reached $48.86/MWh on Nov. 25, up 15% from a year earlier, according to Pexapark data. This could indicate that the forward market has yet to price in RTC+B.

The reforms also carry major implications for BESS, starting with a "single-model" resource treatment. This allows BESS to operate on a continuous range from charging to discharging, treating it as one versatile unit. This is a welcome change from the current "combo model," which treats BESS as two separate resources: a generator and a load. The change will allow BESS to provide ancillary services across their full range, making them more valuable to the grid.

In another beneficial change, the reforms set shorter duration limits for BESS in the ancillary services markets. This is expected to pave the way for greater participation given that many of the resources cannot discharge for more than two hours. The new limits half the existing ones, with regulation service and Responsive Reserve Service (RRS) each at 30 minutes, and ERCOT Contingency Reserve Service (ECRS) at one hour.

These benefits could be limited, however, by a new State-of-Charge (SOC) constraint in which ERCOT will have visibility into the SOC of BESS resources and factor that into its awards. This may limit the practice of “stacking” multiple ancillary service products, as BESS will be required to have enough charge to cover all committed services simultaneously.

“Once implemented, these enhancements will provide operational and reliability benefits to the ERCOT system as well as estimated annual wholesale market savings in excess of one billion dollars,” said ERCOT Vice President of Commercial Operations Keith Collins in a statement. “We expect significant savings to pass down to Texas electric consumers as a result.”