The revenue stack for battery energy storage systems in ERCOT is changing. Ancillary Service clearing prices are declining, relative to Energy prices. Additionally, more batteries are becoming commercially operational every month - meaning more competition in those markets.

As a result of these changes, more battery energy storage capacity is available to perform Energy arbitrage. And the proportion of revenues from Energy has increased to **26% **in 2024 - as highlighted in our H1 revenue round-up.

By the end of 2025, installed battery energy storage capacity is expected to increase by **3x** - and potentially even more. Meanwhile, procured Ancillary Service volumes will remain relatively constant.

As such, Energy arbitrage will make up an increasingly large proportion of the revenue stack. So, how can operators ensure that their systems are earning reliable revenues efficiently while using an arbitrage-focused strategy?

Energy arbitrage can be done in a few different ways, such as:

- Buying and selling Energy during the lowest and highest-priced hours - exclusively in the
**Day-Ahead Market**. - Buying and selling energy during the lowest and highest-priced hours - exclusively in the
**Real-Time Market**. - Or operating across both markets - by buying at the lowest hours in
*either*the DAM or the RTM, and then selling across the highest hours in either market.

So, letâ€™s look at how these different strategies might impact revenues.

## Battery energy storage revenues across Energy arbitrage strategies

In the first half of 2024, **two-hour** battery energy storage systems in ERCOT earned an average of **$38/kW**.

They did this while cycling an average of **0.45** times per day - equivalent to **81** total cycles over the time period.

But what if a two-hour battery had decided to only pursue revenues via Energy arbitrage? How would its revenues compare to the Index?

### Perfect foresight of Day-Ahead vs. Real-Time prices

Imagine a battery energy storage operator has perfect foresight of prices in the Day-Ahead and Real-Time Markets.

The operator is trading a two-hour battery energy storage system. They structure the batteryâ€™s bid and offer curves to buy and sell energy in whichever of the Day-Ahead or Real-Time Markets produces a larger two-hour price spread. (And they forego Ancillary Services entirely.)

If this approach had been taken every single day through the first half of 2024, the battery would have earned **$49/kW. **This is **31% **higher than the **$38/kW **earned by the average two-hour battery in ERCOT, according to the Modo BESS Index.

Of course, this wouldâ€™ve required **cycling the battery every day**.

So, letâ€™s imagine that the battery performs the same number of cycles during this period - 0.45 per day, or 81 in total - as the actual average.

With perfect foresight, this wouldâ€™ve meant capturing the 81 best days of spreads. And this still wouldâ€™ve resulted in revenues **11% higher **than the Index**.**

This perfect foresight DA/RT strategy - while opting to perform 0.45 cycles per day - wouldâ€™ve led to earnings of **$0.52/kW/cycle**.

However, capturing the better of the Day-Ahead or Real-Time spread on every operating day would be nearly impossible. But this indicates that the opportunity to earn competitive revenues - relative to the Modo BESS Index (which includes revenues from Ancillary Services) - by opting for an Energy arbitrage-only strategy does exist.

So, how might an operator attempt to capture this revenue *realistically*?

### Day-Ahead Energy arbitrage

Imagine our two-hour battery decides *only* to buy and sell Energy in the **Day-Ahead Market**. It structures its bid and offer curves to buy and sell energy during the two lowest and two highest-priced hours *every day*.

This wouldâ€™ve resulted in cumulative battery energy storage revenues of **$33/kW **during this period.*

To achieve these revenues, the battery would have to cycle every day, meaning per-cycle revenues would be just **$0.18/kW/cycle**.

However, not every spread is worth capturing. If a two-hour battery cycled the same amount as the average battery in the Index - capturing the 81 most lucrative Day-Ahead spreads - per-cycle revenues wouldâ€™ve increased to around **$0.35/kW/cycle.**

**Real-Time Energy arbitrage**

Now, letâ€™s look at performing Energy arbitrage in the **Real-Time Market** instead.

Capturing the best available spreads in the Real-Time Market *every day* wouldâ€™ve resulted in cumulative battery energy storage revenues of **$37/kW**. This is just below the two-hour Modo Index.

But, this still requires cycling the battery every day, often to capture minimal spreads. As a result, per-cycle revenues would have been **56%** lower than the Index.

Reducing the batteryâ€™s cycling rate to the average two-hour battery cycling rate (0.45 cycles/day) over the first half of the year wouldâ€™ve reduced cumulative revenues to around **$31/kW. **However, per-cycle revenues wouldâ€™ve been **$0.40/kW/cycle. **

This is still below the Index - but the Ancillary Service revenue opportunities that existed in the first half of 2024 wonâ€™t necessarily be around for much longer.

**Modoâ€™s ERCOT subscribers can read the rest of the article below. Learn about the mechanics of implementing a Day-Ahead/Real-Time optimization strategy that:**

**provides daily revenue security,****hedges against the volatility risks of the Real-Time Market,****doesnâ€™t require daily cycling of a battery energy storage system,****and achieves per-cycle revenues on par with the H1 2024 two-hour index.**

**Implementing a DA/RT optimization strategy for a battery energy storage system**

Maximizing wholesale revenues is one of the main focuses when operating any type of resource. However, itâ€™s important to do this while keeping in mind other factors, such as: