Electricity market price spikes: the grid events that make or break your year

In electricity markets, outliers matter most: if you capture a pricing outlier, you can make (or save!) millions of dollars in just a few hours.

To put this into perspective, the table below shows the distribution of Hub North electricity prices from ERCOT over 2022. Note the P90 price is only $85/MWh or ~2x the median, but the P99.99 price is $5,425/MWh…120x the median! While these outlier prices occur infrequently, they pack far more punch: in the best case scenario, let’s say you’re producing 200 MW when these prices occur (that’s $1MM of revenue per hour! 😃); in the worst case scenario, you’re contracted to deliver energy but production falls short and you’re forced to buy very expensive MWs, incurring a massive bill (up to $1MM of cost per hour 😬). So these handful of hours can, quite literally, make or break your year.

Fortunately, these price outliers can be predicted. At Gaia we combine AI, physics and economics to anticipate the probability of spikes. This foresight into the probability of high prices enables you to make the right trade decisions for your asset, best managing risk and maximizing return.

To highlight the value that these forecasts provide, let’s look at a simple trading strategy: bid into the Day Ahead Market to buy 200 MW at our P30 forecasted price and to sell 200 MW at our P30 forecasted price at every hour. This simplistic strategy generated a profit of over $12.5 million in a 2022 backtest. Over 70% of the returns came from the model correctly flagging the probability of high prices on four key days: February 24th, May 13th, July 9, and July 13.

The graph below provides a deep dive into Gaia’s P50 forecast vs observed on July 13th, and hourly profit. This trading day alone generated over $4.5 million in profit!

Returns on July 13th were driven by Gaia correctly capturing the high probability of price spikes, forecasting nearly 100% chance of a spike above $500/MWh for hours 14-18, and an ~80% chance of a price spike above $1,000 for hours 15-17.

A good forecast enables you to make the right decision at the most vital time. At Gaia, we understand this.

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To learn more about Gaiascope’s capabilities, please inquire on our Contact Us page or email us at founders@gaia-scope.com.