The DA-RT Spread: A Field Guide for Renewable Operators in CAISO

Every renewable plant selling into CAISO lives with two prices for the same hour: the day-ahead price fixed the afternoon before, and the real-time price discovered in short-interval dispatch. The difference between them, the DA-RT spread, determines the economics of every bidding decision the plant makes. This is a working reference for reasoning about it.

The two settlements

Day-ahead (DA). CAISO clears a financial forward market for each hour of the next operating day. Bids are due mid-morning; results post in the early afternoon. Whatever quantity you clear is a firm financial position at the day-ahead locational marginal price (LMP) at your node.

Real-time (RT). Actual operations settle through the real-time market: the fifteen-minute market (FMM) sets schedules and prices on fifteen-minute intervals, and real-time dispatch (RTD) prices five-minute deviations from those schedules. Your deviation, positive or negative, from the day-ahead position settles at these real-time prices.

So a plant that commits Q in the day-ahead and produces q earns roughly Q at the DA price plus (q minus Q) at the RT price. The spread S = DA - RT is what makes the choice of Q matter.

Properties of the spread

Near-zero unconditional mean. Convergence (virtual) bidders can buy in one market and sell in the other with no physical asset, so any persistent average gap gets arbitraged away. What remains is a small conditional risk premium plus transient inefficiencies.

Fat, asymmetric tails. Real-time price spikes during tight evening ramps are far larger than anything the day-ahead typically prints. A plant that is short in real time during a spike pays for the whole month's optimization in one evening. The tails, not the mean, are where the risk lives.

Regime dependence. The spread distribution conditional on a stressed system (heat wave, low hydro, high load forecast, weak imports) is a different object from the distribution on a mild day. Any useful model of the spread is a conditional model.

The duck curve is the base rhythm

CAISO's net load shape drives the spread's daily structure. Midday solar floods the system: prices sag, frequently below zero, and economic curtailment becomes routine, especially in spring. Then solar rolls off into the evening peak and the system climbs the steepest ramp in US markets, which is where real-time scarcity and the ugliest spread tails concentrate.

For a solar plant this timing is adversarial by construction: your maximum output lands on the weakest prices, and your forecast errors are shared by every other solar plant on the system. Fleet-wide over-production crushes real-time prices precisely in the hours you have surplus to sell. That covariance between production error and spread is a first-class input to the bidding decision, not a rounding error.

Your node is not SP15

LMP decomposes into a system energy component, a congestion component, and a loss component. The trading-hub prices quoted in market commentary (SP15, NP15) average away the congestion that dominates settlement at many generator nodes.

The nodal spread therefore splits into two parts: the system-wide spread that everyone shares, and a nodal congestion spread driven by transmission constraints that bind differently in real time than the day-ahead solution anticipated. Planned and forced transmission outages, seasonal flow patterns, and local generation mix all move it. Two plants fifty miles apart can face opposite congestion spreads in the same hour. For plants deep in solar-heavy pockets, the congestion component is frequently the larger and more forecastable part of the story.

Negative prices and offer floors

Renewable offer behavior at the bottom of the price range is set by tax credits. A plant earning the production tax credit is paid per MWh generated, so it rationally keeps producing at negative LMPs down to roughly the negative of its credit value. An investment-tax-credit plant, paid on capex rather than output, typically floors near zero. In CAISO's long midday negative-price hours, where your floor sits determines when those hours are a curtailment decision versus a bidding decision.

Obligations that constrain the bid

Two institutional details shape what a CAISO bid is allowed to look like. Resources under resource adequacy (RA) contracts carry must-offer obligations that constrain when and how they can withhold. And all market interaction runs through a scheduling coordinator (SC), the certified entity that submits bids and receives settlements on the plant's behalf. Settlement and must-offer rules change; verify current tariff provisions before relying on specifics.

Glossary

• LMP: locational marginal price; nodal energy price with energy, congestion, and loss components.
• DA / RT: day-ahead market (hourly, financial, cleared the prior day) and real-time market (physical settlement via FMM and RTD).
• FMM / RTD: fifteen-minute market and five-minute real-time dispatch, the two stages of CAISO real-time settlement.
• Spread (S): DA minus RT price for the same node and hour.
• Convergence bidding: purely financial DA positions that settle against RT; the arbitrage force that keeps the average spread near zero.
• Congestion component: the part of LMP created by binding transmission constraints; the main reason nodal spreads differ from hub spreads.
• Duck curve: CAISO's net-load shape; deep midday solar trough followed by a steep evening ramp.
• Curtailment: reduction of output due to negative prices, grid constraints, or dispatch instructions; SCADA records produced, not producible.
• RA / must-offer: resource adequacy contracts and the offer obligations that come with them.
• SC: scheduling coordinator, the certified market interface entity.
• PTC / ITC: production and investment tax credits; they set a plant's rational offer floor.
• Quantile / calibration: a P10 forecast should be exceeded about 90% of the time; calibration is the property that stated probabilities are honest.
• Point-in-time discipline: evaluating any strategy using only information available before the day-ahead gate closed.