​Grid-scale batteries in CAISO earned $1.81/kW-month in January 2026 from Energy arbitrage and Ancillary Services. Low natural gas prices compressed arbitrage spreads for most of the month, though a late-month gas price spike briefly widened the gap.

Revenues rose $0.62/kW (+52%) from December 2025, the lowest monthly revenue since the inception of the Modo Energy BESS CAISO Index in August 2022. Year-over-year, revenues fell $1.68/kW (-48%) from January 2025's $3.49/kW.

​The Integrated Forward Market (IFM) accounted for $1.50/kW of that $1.68/kW year-over-year decline. Day-ahead Energy arbitrage continues to dominate both the revenue stack and the year-over-year decline.

Read last month's report here.

For any questions about CAISO research or benchmarking, reach out to logan@modoenergy.com.

Key takeaways

• Four-hour Top-Bottom (TB4) price spreads fell 42% year-over-year to $2.9k/MW. Natural gas prices in California dropped 36% ($3.82 to $2.46/mmBTU), reducing the cost of marginal generation and compressing the evening peak prices that batteries rely on for discharge revenues.
• A late-month natural gas price spike during Winter Storm Fern generated 23% of January's total revenues in just four days (January 24th-27th). Those four days contributed roughly $0.41/kW of the month's $1.81/kW total.
• Annualized merchant revenues for January 2026 imply a $21/kW-year return by year’s end, roughly half of January 2025's $41/kW pace and well below 2024's full-year average of $51/kW. That gap reinforces the case that merchant revenues alone cannot sustain new investment at historical levels.

​Cheap natural gas compressed price spreads

IFM Energy revenues fell from $2.85/kW in January 2025 to $1.35/kW in January 2026 (-53%). That $1.50/kW decline accounts for 89% of the total year-over-year revenue loss. Ancillary Services contributed a further $0.17/kW decline as regulation prices fell 52%.

The primary driver was a collapse in TB4 spreads: from $5.1k/MW to $2.9k/MW. Batteries earn the bulk of their IFM revenues by charging during low-price midday hours and discharging during the evening peak. Both sides of that trade moved against batteries.

​On the discharge side, natural gas prices in California fell 36% year-over-year ($3.82 to $2.46/mmBTU). With cheaper fuel, gas plants bid lower into the IFM, reducing the clearing prices batteries receive when discharging. Natural gas generation fell 38% (5.41 to 3.33TWh) as lower prices displaced less efficient units from the stack. Average daily TB4 spreads fell from $163/MW to $95/MW as a result, a decline of $68/MW per day in available arbitrage value.

On the charging side, solar generation fell 3% (3.30 to 3.21TWh) despite further capacity additions. The first few days of January 2026 saw the continuation of a thunderstorm that began at the end of December 2025. And clouds covered the skies from January 18th to the 24th.

Both these phenomena suppress the solar output the CAISO can typically depend on. The grid operator leans on the agility of batteries during these periods, which is discussed in greater detail below.

​The average daily net load minimum rose 16% (2.90 to 3.37GW), meaning batteries faced a shallower midday price trough to charge from. Together, lower discharge prices and higher charging costs narrowed the spread from roughly $40/MWh to $24/MWh in average peak-to-trough terms.

Winter Storm Fern rescued the month from record-low territory

The month split into two distinct stretches. For the first 20 days, daily TB4 spreads averaged just $86/MW, roughly in line with the conditions that produced December's record-low revenues. Then Winter Storm Fern hit the United States.

The storm swept across more than 30 states from January 23rd-27th, focused primarily east of the Rockies. California avoided the worst of the ice and snow. However, the storm's pressure on natural gas infrastructure briefly reached the West Coast, driving a sharp spike in gas-fired generation costs across Southern California.

That temporary surge in gas prices translated directly into higher electricity prices. TB4 spreads jumped from $62/MW on January 23rd to $208/MW on January 26th, the highest daily reading of the month. Only three days in the entire month exceeded $150/MW, and all three occurred during the storm window.

​The four days from January 24th-27th generated $409/MW in cumulative revenues, or 23% of the month's total. That equates to roughly $0.41/kW of the month's $1.81/kW headline number. Daily revenues during this stretch averaged $102/MW, nearly double the $55/MW average for the first 20 days.

​Without the storm, January 2026 revenues were tracking closer to December's record-low pace. Weather events remain the only catalyst producing outsized revenue days in CAISO's current market. They’re not sufficient for such lucrative days though, as evidenced by the Christmas storm the prior month.

CAISO relies on batteries to balance the grid in real-time

CAISO’s real-time markets (FMM and RTD) contributed $0.28/kW in January, roughly flat with last year’s $0.29/kW. While day-ahead revenues decreased by 53%, real-time revenues held steady. That resilience reflects the role batteries play in balancing CAISO’s grid on short timescales.

The divergence between the two real-time settlement stages is a recurring winter pattern. RTD Energy rose 17% year-over-year to $0.27/kW, accounting for nearly all real-time revenue. FMM Energy contributed just $0.01/kW, down from $0.06/kW a year ago.

​Solar generation is less predictable in winter months: fog, cloud cover, and storms cause actual output to deviate from forecasts more frequently than in summer. Those forecast errors flow through to FMM prices, which still rely on projections updated minutes ahead of delivery.

RTD, dispatching every five minutes against actual grid conditions, captures the value of correcting those mismatches. Batteries are the fastest resource available to provide that correction, and their five-minute revenues reflect it.

That pattern continued a trend from December 2025, when RTD was the largest revenue contributor on one-third of the days in the month. In both months, day-ahead conditions were poor, and CAISO leaned on batteries' ability to respond within minutes to keep supply and demand in balance. RTD was the second-largest revenue contributor for January, behind only IFM Energy.

SP15 batteries saw the strongest arbitrage opportunity during the storm

TB4 spreads for January 2026 were tightly clustered across CAISO's three zones. SP15 and ZP26 recorded $3.0k/MW, while NP15 trailed at $2.9k/MW.

For the first three weeks of the month, the three zones tracked each other closely: daily TB4 spreads differed by less than $15/MW on most days. This uniformity mirrors December 2025, when low congestion left little room for zonal differentiation.