In September 2024, battery energy storage systems in ERCOT earned average annualized revenues of $22/kW. This marked the first month in which batteries earned a majority of their revenues from Energy arbitrage.
September also saw Ancillary Service clearing prices fall to five-year lows. This meant that some of the highest-earning battery energy storage systems earned more than 80% of their revenue from Energy arbitrage.
But what did this look like on a day-to-day basis, asset-to-asset? What operational profiles led to stronger revenue performances? And how did this emphasis on Energy arbitrage impact cycling rates?
How did battery energy storage operations evolve from August to September?
August 2024 was one of the most significant months for the battery energy storage buildout in ERCOT ever. Three individual batteries, totaling nearly 700 MW of rated power, reached commercial operations. Furthermore, all three are two-hour battery energy storage systems.
This additional capacity resulted in the continued increase in competition in Ancillary Service markets in September. Increased competition in Ancillary Service markets also came alongside a month of September with limited volatility. September 2024 was a relatively mild weather month relative to September 2023, and seasonal thermal generation outages had yet to begin. All of this contributed to the extremely low Ancillary Service prices in September.
Knowing this, operators elected to use a higher proportion of their batteries’ capacity to perform Energy arbitrage.
As a result, in September 2024, the average daily peak net output of battery energy storage systems across ERCOT was around 2.1 GW during the evening net load ramp. This represents a 65% increase from August.
Of note, Ancillary Service contract capacity remained relatively consistent from August to September. Cumulative Ancillary Service responsibility of all battery energy storage systems ranged from around 1 GW overnight to a peak of around 3.5 GW during the peak demand hours of the afternoon - ahead of the evening solar ramp.
However, performing Energy arbitrage on a regular basis requires cycling significantly higher cycling rates than holding reserve Ancillary Service responsibility. Energy revenues come from the actual physical dispatch of the battery. For Ancillary Services, operators earn revenue for reserving capacity, rather than for actual physical throughput.
So, how did this shift in September impact cycling rates?
Do higher cycling rates mean higher revenues for battery energy storage systems?
Revenues in September varied widely between battery energy storage systems, ranging from just $8/kW to nearly $100/kW in one case.
Overall, longer-duration batteries earn higher revenues per cycle than shorter-duration batteries. This is because longer-duration batteries can discharge for longer periods of time. This means they can capture Energy arbitrage revenue opportunities that last for an extended period or avoid de-rating their batteries during shorter price peaks.
Ancillary Service responsibility is also awarded as a proportion of rated power (MW). This means it uses a smaller proportion of two-hour battery energy storage systems energy capacity (MWh).
Battery revenues were highly variable in September, and operators employed very different strategies to achieve them. In fact, average daily cycling rates ranged from near-zero to more than one cycle per day.
Republic Road, Ebony, and Flower Valley 2 are each two-hour duration batteries larger than 50 MW. In September, these three batteries had different strategies, which is evident in how their revenues varied and how often they cycled.
To illustrate this, subscribers to Modo Energy’s ERCOT products can continue reading to learn:
- how different focuses on Ancillary Service responsibility and Energy arbitrage resulted in varied revenues - and cycling rates - for these batteries in September,
- how different owners and operators of battery energy storage establish consistent monthly operational patterns,
- and how transmission congestion in a market focused more on Energy arbitrage means revenue opportunities aren’t always equal.
How much do the operational profiles of some battery energy storage systems vary - and how does that impact revenues?
Let’s take a look at how three individual battery energy storage systems operated throughout September: