Production-cost modeling

The production-cost model is a key component of Modo's forecasting tool and simulates the optimal behavior of a power system. Specifically, it decides how to dispatch generation across various technology types to ensure supply meets demand at the lowest system cost, all while respecting the limits of the (simplified) transmission network. The production-cost model completes this for each 15-minute interval for the four modeled zones from the present day until 2050.

The model outputs two key items:

• Optimal system dispatch, that is the generation output of each technology type for all time intervals.
• The price of energy, calculated as the cost of producing an additional unit of electricity at each region in the model (aka the shadow price of the power balance constraint).

Key assumptions

• Zonal Representation - The model uses a zonal approach, which simplifies the transmission network by grouping areas into zones rather than modeling each node individually. Our zones correspond with the ERCOT load zones (North, South, West, and Houston).
• Fixed Capacity - The model assumes that the capacities for generation and transmission are fixed and does not make decisions to build or retire assets. Note, this does not mean generation capacity remains constant, we do for example, capture the retirement plans of coal plants and the deployment of solar.
• 15-minute dispatch - All decisions within the model are made at discrete 15-minute time intervals to coincide with settlement in the ERCOT real-time market. As such, all results are output at 15min granularity (e.g., prices and plant behavior).

What about storage revenues?

The pricing outputs from the production-cost model are subsequently used as the main input for our dispatch model. The dispatch model then computes how much money a battery energy storage site could make if dispatched against these prices if operated optimally.