What Is ERCOT Nodal Pricing? The Texas Wholesale Electricity Market Explained
Key Takeaway
ERCOT uses nodal pricing where each bus on the grid has its own price reflecting local generation cost, transmission congestion, and losses. ERCOT switched from zonal to nodal pricing on December 1, 2010.
Quick Answer
ERCOT uses a nodal pricing market design where electricity prices are calculated at each individual bus (node) on the Texas transmission grid. Nodal pricing reflects the true locational cost of power including energy, congestion, and losses. ERCOT switched from a four-zone market to nodal pricing on December 1, 2010.
Why Nodal?
The zonal market masked local congestion, resulting in out-of-merit dispatch and uplift costs. Nodal pricing exposes the true locational cost at each point on the grid, improving dispatch efficiency and price transparency.
Settlement Points
Each generator, load zone, and trading hub has its own settlement point price. Over 700 resource nodes for individual generators, plus four load zones (Houston, North, South, West) and financial hubs.
Two Markets
- Day-Ahead Market (DAM) — Forward market, financially binding hourly prices
- Real-Time Market (RTM) — Physical dispatch, 5-minute prices
ERCOT's Unique Position
ERCOT operates entirely within Texas and is regulated by the PUCT rather than FERC. It is the only US ISO that operates as an island without significant interstate power flows.
Frequently Asked Questions
The Electric Reliability Council of Texas — the ISO managing the wholesale electricity market for approximately 90% of Texas's electric load.
December 1, 2010, replacing the four-zone market with thousands of individual settlement points.
No. ERCOT operates entirely within Texas and is regulated by the Public Utility Commission of Texas (PUCT).