As renewables and storage increasingly drive energy price formation, forecasts must evolve to account for the new market dynamics of the energy transition. Frequently, overoptimized production cost models underpredict renewable price-setting behavior and price volatility, as well as undervalue the importance of opportunity costs in setting market prices. This, in turn, leads to most forecast models having thermal generation too often setting prices in capacity, energy, and ancillary markets​. In reality, increasing renewable and energy storage penetrations are shifting the supply stack, affecting price-setting behavior, and forcing generator bidding behavior to take into account output uncertainty and opportunity costs.

In a  recent webinar discussing Ascend's proprietary Opportunity Cost Forecasting Framework, Dr. Gary Dorris, CEO at Ascend Analytics, joined Dr. Brent Nelson, Managing Director of Markets and Strategy, to discuss new pricing drivers, what many forecasting approaches miss, and how Ascend’s forecasts are designed to reflect the new market dynamics of the energy transition.

Key Takeaways 

• Rational investments will converge markets towards an equilibrium between the locational cost of new entry and locational project value. Thus, price formation forecasts, like those underpinned by the AscendMI™ Opportunity Cost Forecasting Framework, must adhere to long-run equilibrium in order to provide defendable valuations that are consistent with a competitive market.

• Weather serves as the key underlying driver for demand, supply, and price formation. Models must account for weather in order to avoid decoupled price and generation simulations that provide inflated capture rates, and which ignore price depression when renewable production is high.​

• Price volatility typically exceeds what is predicted by traditional production cost models. Intentionally accounting for volatility in both day-ahead and real-time markets helps lead to models that are consistent with the market and relevant for valuation of battery energy storage and other flexible assets.

• As the energy transition advances, forecasts must account for non-economic driving forces, such as policy and offtake demand, as well as the cost of land and renewable resource potential in shaping geospatial price dynamics​.  

• AscendMI valuation tools and forecasts are continuously calibrated to reflect realizable revenue in operating assets. Though forecast accuracy is weather-dependent and can vary with accuracy in the traded market forwards, Ascend models have proven consistently and directionally correct in a number of crucial areas related to price formation, investment behavior, policy development, and more. 

Access the full webinar now.

Interested in Learning More?  

AscendMI™ (Ascend Market Intelligence) delivers proprietary power market forecasts that have been trusted in hundreds of projects and resource planning activities, supporting over $25 billion in project financing assessments. Contact us to learn more. 

Ascend Analytics is the leading provider of market intelligence and analytics solutions for the energy transition. The company’s offerings enable decision makers in power development and supply procurement to maximize the value of planning, operating, and managing risk for renewable, storage, and other assets. From real-time to 30-year horizons, their forecasts and insights are at the foundation of over $50 billion in project financing assessments. Ascend provides energy market stakeholders with the clarity and confidence to successfully navigate the rapidly shifting energy landscape.